DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 23

[Docket       Docket OST-97-2550;  Notice       ]

RIN  2105-AD21AC91

Participation by Disadvantaged Business Enterprises in Airport
Concessions

AGENCY:  Office of the Secretary, DOT

ACTION:  Final Rule

SUMMARY:   This rule revises and updates the Department’s regulation
concerning participation by airport concessionaire disadvantaged
business enterprises (ACDBEs) in the concessions activities of airports
receiving Federal financial assistance from the airport improvement
program (AIP) of the Federal Aviation Administration (FAA).  It makes
the ACDBE concessions rule parallel in many important respects to the
Department’s DBE regulation for Federally-assisted contracts.  It also
addresses issues such as goal-setting, personal net worth and business
size standards, and counting ACDBE participation by car rental
companies.

EFFECTIVE DATE:   This rule is effective [insert date 30 days from date
of publication in the Federal Register].

FOR FURTHER INFORMATION CONTACT:  Robert C. Ashby, Deputy Assistant
General Counsel for Regulation and Enforcement, Department of
Transportation, 400 7th Street, SW., Room 10424, Washington, DC  20590,
phone numbers<PHONE_NUMBER> (voice),<PHONE_NUMBER> (fax), (202)
755-7687 (TTY<EMAIL_ADDRESS>(e-mail); and Michael Freilich,
National External Program Manager, Office of Civil Rights, Federal
Aviation Administration, 800 Independence Avenue, SW, Washington DC,
20591.  Phone numbers<PHONE_NUMBER> (voice),<PHONE_NUMBER> (fax)..

SUPPLEMENTARY INFORMATION:

Background

This final rule revises and updates the Department’s regulation to
ensure nondiscrimination in the provision of opportunities for
disadvantaged business enterprises in airport concessions (49 CFR Part
23).   The regulation is mandated by 49 U.S.C. 47107(e), originally
enacted in 1987 and amended in 1992.  The current language of this
section is the following:

(e) Written Assurances of Opportunities for Small Business Concerns.
(1) The Secretary of Transportation may approve a project grant
application under this subchapter for an airport development project
only if the Secretary receives written assurances, satisfactory to the
Secretary, that the airport owner or operator will take necessary action
to ensure, to the maximum extent practicable, that at least 10 percent
of all business at the airport selling consumer products or providing
consumer services to the public are small business concerns (as defined
by regulations of the Secretary) are owned and controlled by a socially
and economically disadvantaged individual (as defined in section
47113(a) of this title).

	(2) An airport owner or operator may meet the percentage goal of
paragraph (1) of this subsection by including any business operated
through a management contract or subcontract.  The dollar amount of a
management contract or subcontract with a disadvantaged business
enterprise shall be added to the total participation by disadvantaged
business enterprises in airport concessions and to the base from which
the airport’s percentage goal is calculated.  The dollar amount of the
management contract or subcontract with a non-disadvantaged business
enterprise and the gross revenue of business activities to which the
management contract or subcontract pertains may not be added to this
base.

	(3) Except as provided in paragraph (4) of this subsection, an airport
owner or operator may meet the percentage goal of paragraph (1) of this
subsection by including the purchase from disadvantaged business
enterprises of goods and services used in businesses conducted at the
airport, but the owner or operator of and the businesses conducted at
the airport shall make good faith efforts to explore all available
ooptions to achieve, to the maximum extent practicable, compliance with
the goal through direct ownership arrangements, including joint ventures
and franchises.

(4) (A) In complying with paragraph (1) of this subsection, an airport
owner or operator shall include the revenues of car rental firms in the
base from which the percentage goal in paragraph (a1) is calculated,.

	(B) An airport owner or operator may require a car rental operator firm
to meet a requirement under paragraph (1) of this subsection by
purchasing or leasing goods and or services from a disadvantaged
business enterprise.  If an owner or operator requires such a purchase
or lease, a car rental firm shall be permitted to meet the requirement
by including purchases or leases of vehicles from any vendor that
qualifies as a small business enterprise concern owned and controlled by
a socially and economically disadvantaged individual.

	(C) This subsection does not require a car rental firm to change its
corporate structure or to provide for direct ownership arrangement to
meet the requirement of this subsection.

	(5) This subsection does not preempt –

		(A)  a state State or local law, regulation, or policy enacted by the

	governing body of an airport owner or operator or;

(B) the authority of a state State or local government or airport owner
or operator to adopt or enforce a law, regulation, or policy

		related to disadvantaged business enterprises.

	(6) An airport owner or operator may provide opportunities for a small
business concern owned and controlled by a socially and economically
disadvantaged individual to participate through direct contractual
agreement with that concern.

(7)  An air carrier that provides passenger or property-carrying
services or another business that conduct aeronautical activities at an
airport may not be included in the percentage goal of paragraph (1) ….

The present version of Part 23 was issued in 1992 (57 FR 18410, April
30, 1992)  aand amended in 1999 (64 FR 5126, February 2, 1999).  There
have been three proposed rules to revise Part 23:  in 1993 (58 FR 52050,
October 8, 1993), 1997 (62 FR 24548, May 30, 1997), and 2000 (65 FR
54454; September 8, 2000).   This final rule responds to comments on the
most recent of these proposals.

In the 2000 proposal, the Department suggested making the DBE
concessions rule a subpart of 49 CFR Part 26, the DBE rule for
DOT-assisted contracts.  However, the DOT-assisted contracts and
concessions rules are based on different statutes.  They apply to
different kinds of businesses, and concern distinct types of
relationships between recipients of DOT financial assistance and
businesses.   There are a number of substantive differences between the
two regulatory schemes (e.g., business size standards).  For these
reasons, the Department has decided to keep the two regulations
separate.  ACDBEs will continue to be governed by Part 23, as revised by
this issuance, and DOT-assisted contracts DBE provisions will remain in
Part 26.  Keeping the regulatory provisions separate should help to
avoid confusion.

The Supreme Court’s decision in Adarand v. Pena, which established the
requirement that race-conscious affirmative action programs meet the
“strict scrutiny” standard of review, was rendered in 1995.  In
1999, when the Department made major changes to Part 26 in order to meet
Adarand requirements, we did not issue a comprehensive revision of the
airport concessions DBE requirements.  Consequently, one of the most
important functions of this final rule is to ensure that the airport
concessions requirements of Part 23 meet Adarand requirements.

In 2003-04, the Department’s Office of Inspector General (IG) issued
two reports that addressed fraud and abuse problems in the
Department’s DBE program.  Many of the IG’s recommendations focused
on the need for more effective oversight of the DBE program by state and
local recipients and by DOT operating administrations.  However, some of
the IG’s recommendations directly concerned regulatory provisions
governing the airport concessions DBE program. Probably the two most
significant IG recommendations were that the Department expeditiously
complete this rulemaking and that it include a specific personal net
worth standard for owners of ACDBEs.  The Department takes the IG’s
findings and recommendations very seriously, and we believe that the
prevention of fraud and abuse in all portions of the DBE program is a
very high priority.  This final rule, like the 2000 proposed rule,
includes a specific personal net worth standard.  The accompanying
supplemental notice of proposed rulemaking asks for comment on
additional steps the Department might take to prevent fraud and abuse.

Major Issues

The Department identified the following issues as the most important in
developing this final rule:  small business size standards; , personal
net worth standards; , counting of ACDBE participation by car rental
companies; , and the goal-setting process. The bulk of comments on the
2000 NPRM concerned these issues.  This portion of the preamble
describes each of these issues, notes how the Department proposed to
resolve it in the 2000 NPRM, summarizes comments on it, and provides a
rationale for the Department’s decision.

1.  Small Business Size Standards

	Size standards in this ACDBE regulation are important for a number of
reasons.  They implement the statutory requirement that participants be
small businesses.  They provide a means to ensure that a firm’s
participation in DBE programs is not forevernecessarily of indefinite
duration:  if a firm grows to exceed size standards, it “graduates”
fromceases to be eligible for the program.  They are calibrated to help
meet the objectives of the program, including permitting ACDBE firms to
compete in the airport concessions market.

In Part 26, businesses seeking DBE certification must, by statute, meet
SBA size standards and an additional $17.42million dollar cap on average
annual gross receipts, currently set at $17.42 million and subject to
periodic adjustments for inflation.  These requirements do not apply to
Part 23, since the ACDBE statute gives the Secretary discretion to set
size standards for concessions.  For most airport concessions, the size
standard under current Part 23 is $30 million average annual gross
receipts.   The proper business size standard for the ACDBE program has
been the subject of comment on all the Part 23 NPRMs that the Department
has issued.  For the reasons stated in the supplemental notice of
proposed rulemaking (SNPRM) that we are publishing in today’s Federal
Register, the Department is seeking additional comment on a number of
size-related issues.

	In the 2000 SNPRM, the Department suggested adjusting the size
standards for inflation (e.g., from $30 million to approximately $33
million) and to create new size standards for management contractors ($5
million) and car dealers (500 employees).  Many airport comments
supported a size standard higher than $33 million, especially for
advertising, but did not suggest an alternative.  One ACDBE suggested
using a higher figure, or an employee number (as in car dealers).  One
airport suggested trying to match size standards more precisely to the
types of businesses involved, while another thought it was confusing not
to apply the Part 26 $17.42 million dollar cap to concessions.  A
consultant asked for more detail, especially with respect to the
affiliation rule.

For parking management, one airport suggested $12 million rather than $5
million, while another said there was confusion between how these two
figures were meant to be applied.  Three airports and a car rental trade
association supported the 500-employee standard for car dealers, while
another large airport said it was too high.

In January 2003, the Department responded to a petition from an airport
advertising firm to alter the size standards further (67 FR 76327;
December 2, 2002).   The petitioner argued that because some types of
concessionaires pay higher concession or lease fees to airports than
others, size standards should be adjusted to equalize the situation of
these different businesses.  The NPRM proposed two options for
equalizing the size standards to take differing concession fees into
accounts, one of which would have increased the size standard
significantly for most categories of businesses and the other of which
would have meant smaller increases for some types of businesses and
modest decreases for others.

The Department received 50 comments on this NPRM.  Most were from
airport operators.  A sizeable majority of the airport comments
supported the proposal, particularly the option that would have raised
the size standards significantly.  Four ACDBE firms and associations
also commented in favor of the proposal.  Supporters generally believed
that the proposed change would create a “level playing field” among
types of ACDBEs.  Some airports, including most of the large airports
that responded, opposed the proposal or thought further study would be
necessary.  A state DOT and an individual commenter also took this
position.  These commenters’ reservations about the proposal centered
on concerns that the proposal would make some size standards
unreasonably high, lead to other inequities among types of businesses,
or were based on inadequate or incomplete data.

In the interim, we will maintain the status quo with respect to Part 23
size standards, with the two exceptions discussed below.   After
reviewing the comments and thinking further about the proposal, we have
concluded that we should not adopt either of the specific options we
proposed.  One could raises the basic size standard too high, and the
other could result in excluding some presently certified firms by
lowering some current size standards.  Both are based on data that
pertains to several categories of firms at large airports, but we have
no data about other categories of firms or practices at smaller
airports.  We are also concerned that facially very different size
standards for different categories of business could lead to perceptions
of unfairness and difficult administrative or legal decisions about the
category in which a particular firm belongs.

However, we are persuaded that the evident differences in concession or
lease fees among types of businesses do present a fairness issue that we
should address.   The most straightforward way of addressing it is to
keep the existing size standards but to subtract from a firm’s gross
receipts the concession or lease fees it pays to the airport for the
privilege of doing business.    All concessionaires pay concession or
lease fees to airports, and it is fair to begin calculating the firm’s
receipts for size standard purpose after these fees have been deducted.

For example, suppose a concessionaire has annual gross receipts of $30
million.  It pays 20 percent of its gross receipts to the airport in
concession fees.  Consequently, for purposes of calculating whether the
firm meets the size standard, the firm’s receipts for that year would
be valued at $24 million.

SBA business size rules now use a dollar standard for car dealers,
rather than a number of employees standard, so we will simply include
car dealers in the general concessionaire size standard.  Likewise, we
do not believe there is any strong rationale for having a separate
standard for management contractors, so they too will be included in the
general standard.

SinceFirst, since goods and services purchased by concessionaires from
ACDBE businesses can count toward ACDBE goals, we think it is important
to clarify in the regulatory text our understanding of the application
of the rule’sthe size standards applicable toto  ACDBE goods and
services providers.  For certification purposes, a firm that provides
goods and services to airport concessionaires is an ACDBE if, assuming
it meets other eligibility criteria, it meets the size standards for
ACDBE concessionaires.  A firm that provides restaurant equipment to a
restaurant at the airport, for purposes of Part 23, must meet the
general Part 23 size standard, rather than the smaller SBA or Part 26
standards, to be an eligible ACDBE, so that the restaurant and the
airport can count the purchase toward DBE goals.

We have adjusted the existing size standards for inflation, as we
proposed without objection from commenters. The adjusted size standards
are $40.57  million (in place of the former $30 million standard for
most businesses) and $54.1 million (in place of the former $40 million
standard for car rental companies).  This rule adjusts the DBE gross
receipts cap for inflation since April 30, 1992, when the Department
established these size standards.

In arriving at these numbers, the DOT used a Department of Commerce
price index to make a current inflation adjustment.  The Department of
Commerce’s Bureau of Economic Analysis prepares constant dollar
estimates of state and local government purchases of goods and services
by deflating current dollar estimates by suitable price indicies.  These
indicies include purchases of durable and non-durable goods, and other
services.  Using these price deflators enables the Department to adjust
dollar figures for past years’ inflation. Given the nature of DOT's
DBE Program, adjusting the gross receipts cap in the same manner in
which inflation adjustments are made to the costs of state and local
government purchases of goods and services is simple, accurate and fair.

The inflation rate on purchases by state and local governments for the
current year is calculated by dividing the price deflator for the fourth
quarter of 2003 (109.546) by 1992’s third quarter price deflator
(80.997).  The third quarter of 1992 is used because that is when the
Department established the current size limitations.  The result of the
calculation is 1.35247, which represents an inflation rate of 35.25%
from the third quarter of 1992 through the fourth quarter of 2003.
Multiplying the $30,000,000 figure by 1.35247 equals $40,574,100, which
will be rounded off to the nearest $10,000, or $40,570,000.  Multiplying
the $40,000,000 figure by 1.35247 equals $54,098,800, which will be
rounded off to the nearest $10,000, or $54,100,000.

There are two size standards that do not follow this pattern.   The size
standard for pay telephones established by SBA in 13 CFR Part 121 is
expressed in terms of a number of employees, rather than a dollar
figure.  There were no comments about the pay telephone size standard,
and we believe that the SBA standard of 1500 employees is appropriate.

  With Second, with respect to banks, the Department received a comment
(styled as a petition for rulemaking) from a financial institution
saying that organizations in its position were unable to compete against
much larger institutions (i.e., in the hundred billion dollars in assets
range) at the current size standard of $150 million in assets.  The
commenter petitioner had been certified by an airport sponsor as an MBE
(in a local MBE program) and a DBE with assets of $275 million.
However, because this exceeded the $150 million standard, the commenter
petitioner was subsequently decertified.  We believe that the commenter
petitioner has a fair point, with respect to the competitive
disadvantages it faces against far larger institutions.  Consequently,
we will increase the banks and financial institutions size standards to
$275 million, which will allow DBE financial institutions to participate
at a level that is more competitive.

We also note that the SBA business size standards no longer use an
employee number standard for car dealers, but rather use a gross
receipts standard.   We believe that this approach, consistent with the
way the Department approaches most business size standards in this rule,
is sensible.  Consequently, we are using the $30 million gross receipts
standard for car dealers as well as for other concession-related
businesses, rather than the previous employee number standard.

2.  Personal Net Worth

	In order to meet narrow tailoring requirements, it is essential that a
DBE program not be overinclusive,. .  The statutory scope of the ACDBE
program is to ensure nondiscrimination for airport concession businesses
owned and controlled by individuals who are socially and economically
disadvantaged.   To prevent the program from becoming overinclusive, the
ACDBE program should ensure that persons who are not disadvantaged do
not have the opportunity to participate.

	By statute, persons in certain designated groups are presumed to be
socially and economically disadvantaged.   The Department has always
held this presumption to be rebuttable.  That is, if a member of a
designated group is shown to be non-disadvantaged, he or she would no
longer be able to participate as an ACDBE owner.  (Likewise, a person
who is not presumed to be disadvantaged could participate if he
demonstrated, on an individual basis, that he is socially and
economically disadvantaged.)  This rebuttable presumption feature of the
existing rule is intended to provide a safeguard against the program
becoming overinclusive, since a recipient UCP (or recipient in a state
where a UCP is not yet in effect)  – on its own or in response to a
complaint – has the authority to determine that an individual should
no longer be regarded as disadvantaged.

	The Department has recognized, however, that in the absence of a
specific criterion for determining whether the presumption of
disadvantage has been rebutted, there are difficult problems of proof
and judgment when an issue is raised concerning the application of the
presumption to an individual.  For this reason, in the 1999 revision to
Part 26, the Department adopted a numerical standard for this purpose.
The absence of such a specific numerical standard in Part 23 has caused
confusion. As noted above, and may have contributed tothe alleged DBE
fraud in some cases.  As a result, the Department’s Office of
Inspector General (OIG) has recommended that Part 23 include a PNW
numerical standard.

	The Department agrees that Part 23 should include a PNW numerical
standard.  The question confronting the Department in this rulemaking is
what that standard should be.  In the 2000 NPRM, we proposed a $2
million PNW standard.  This was higher than the $750,000 standard of
Part 26 in recognition of the generally accepted proposition that
airport concession businesses are more capital intensive, higher cash
flow, businesses than many businesses working under Part 26.  The owners
of concessions therefore need more assets in order to enter and thrive.

	There were a variety of comments on the PNW proposal.  Many of the
airport commenters, in general, generally said that we should not impose
“onerous” requirements on ACDBEs or airports in the PNW area.  They
did not provide any specifics, however.  Some airports supported the
proposed $2 million cap, while an airport trade association and other
airports said that $2 million or an unspecified higher standard would be
appropriate.  However, other airports and a union said that that the $2
million proposal was too high.  Generally, these comments said that a
cap at this level or higher would undermine the reason for having a PNW
standard, allow persons into the program that were too rich, and lead to
overinclusiveness problems.  One of these commenters suggested a $1
million standard and another suggested $750,000.  Another comment said
that whatever the PNW level was, it should be the same for concessions
and DOT-assisted contracts.

Many comments from ACDBEs and from an ACDBE trade association, as well
as some airports, said that the final rule should not include any PNW
standard or that the cap should be significantly higher (e.g., $3-10
million).   Their main argument, which some comments fleshed out with
real-world examples, is that in order to finance business expansion in a
capital-intensive field like concessions, lenders required very high
asset levels on the part of owners.  If a business could not expand
without its owners accumulating enough assets to exceed the $2 million
cap, the ACDBE program would create a glass ceiling.

Some comments suggested ways of limiting the adverse effects of PNW.
These included (1) making PNW a rebuttable presumption; (2) establishing
a sliding scale for PNW, relative to the projected gross sales of the
business; (3) having a two-tier (e.g., entry and retention) standard;
(4) establishing some system that would reflect the individual
situations of businesses and owners, and (5) excluding from the PNW
calculation assets encumbered (e.g., as collateral for a loan) for
business purposes.  A number of commenters also favored grandfathering
existing concessionaires, so they did not lose their certification and
contracts because of a new PNW standard coming into being.

Since the 2000 SNPRM, Federal courts have decided a number of cases
upholding Part 26 as being narrowly tailored.  The existence of the
$750,000 PNW cap in Part 26 was one of the factors leading to these
successful defenses of the regulation.  This strengthens the
Department’s belief that a PNW cap of this kind is appropriate to add
to Part 23.

The Department has concluded that $750,000, adjusted for inflation, is
the an appropriate standard for PNW.  It is consistent with the Part 26
standard, and it has been approved by the courts in that context.
Having only one PNW standard will avoid confusion between the Part 23
and Part 26 portions of the Department’s DBE program.  It will avoid
concerns about overinclusiveness in the program by ensuring that persons
who would fairly be perceived as too wealthy for a program aimed at
assisting “disadvantaged” individuals do not participate.  It
responds to the concerns about confusion and fraud that were the basis
for the OIG’s recommendation.

At the same time, the Department is sensitive to the concern of
commenters that a PNW standard at this level could inhibit opportunities
for business owners to enter the concessions field and expand existing
businesses.

We do not believe that having a much substantially higher PNW standard
across the board is the best way to respond to this concern:  too high a
standard would undermine the rationale for having a PNW standard in the
first place.  It could lead to concerns about overinclusiveness and to
the perception that the program was not appropriately focused on
disadvantaged individuals.

	In calculating PNW, Part 26 makes reasonable exclusions for the the
business owner’s equity in an his or her owner’s primary residence
and the assets he or she has invested in the business applying for
certification.  In the different business context of concessions, the
Department will add a third exclusion.  Assets that the owner/applicant
can demonstrate are necessary to obtain financing to enter or expand a
concessions business at an airport subject to Part 23 (e.g., by
producing letters from banks to that effect) would also be excluded from
the PNW calculation, as would assets that have in fact been encumbered
to support existing financing for the applicant’s business.  This
provision would extend only to “recourse” assets (i.e., those that
were encumbered or to be encumbered in order to obtain financing, as in
a case where an asset is used a collateral for a loan).

For example, if the owner/applicant for ACDBE certification to operate a
fast food franchise at an airport could document that MegaBurger
Corporation requires the franchisee to have $X in assets before it will
grant the franchise, that amount would be excluded from the PNW
calculation.   Likewise, if the owner of an ACDBE retail or service
business who wished to expand operations to another airport could
document that a number of financial institutions required $Y in personal
assets to back a loan needed for the expansion (e.g., by producing
letters from the banks to that effect), $Y would be excluded from the
PNW calculation.  Airports/UCPs would be responsible for verifying the
documentation pertinent to this exclusion.

	Without unduly expanding the well-accepted $750,000 standard, this
approach will take into account individual circumstances and avoid the
“glass ceiling” effect of an across-the-board PNW standard about
which commenters were concerned.  There will be additional information
that owners will have to obtain and recipients and UCPs will have to
evaluate, but we believe that this is justified in the interest of a
narrowly tailored regulation that remains fair and flexible regulation
that achieves the objectives of nondiscrimination and opening business
opportunities to ACDBEs.

	To prevent the eligibility standards from becoming too open-ended,
resulting in the participation of individuals so wealthy that it would
be difficult to justify their inclusion in a program aimed at
disadvantaged individuals, we are adding a $5 3 million cap on this
third exclusion.  This figure is consistent with many comments
concerning an appropriate upper end to thethe appropriate extent of a
PNW threshold.  That is, an applicant could present documentation to the
certifying authority that he or she required a certain amount of assets
to open or expand a concessions business.  If that amount exceeded $5 3
million, the amount of the individual’s net worth above $5 3 million
would be added to the PNW calculation.

Here is an example of how these provisions would work.  A hypothetical
business owner, Ms. T, has a gross PNW of  $64.6 million.   The equity
in her primary residence is $400,000.  She has directly investedHer
equity in the business is $500,000 in her business000..  She produces
adequate documentation from at least two financial institutions that
they will require $53.6 million  in assets to support their granting the
loan necessary to open a concession business at a particular airport.
(Ms. T’s documentation would also need to justify the need for a loan
of the amount referenced in the letters from the financial institutions,
documenting the build-out costs and other capital investment needed to
begin operating the concession.)

Because $53.6 million exceeds the $5 3 million cap on the third
exclusion from the PNW calculation, $600,000 would count toward that
calculation.  In this case, her net PNW would be $700,000 ($64.6 million
- $5 3 million - $400,000 - $500,000).  This amount is less than the PNW
threshold, so Ms. T would be an eligible ACDBE owner.   However, if her
gross PNW were $7 5 million, then her net PNW, after subtracting all
three exclusions, would be $1.1 million, putting her over the PNW
threshold and making her ineligible to be an ACDBE owner.

	The Department first adopted the $750,000 standard for Part 26 in 1999.
 To account for inflation in the intervening years, we have adjusted the
number.

The adjusted number, which appears in the final rule, is $ 870,000.
In arriving at this number DOT used the same Department of Commerce
price index explained in with respect to small business size standards
above.  The inflation rate on purchases by state and local governments
for the current year is calculated by dividing the price deflator for
the fourth quarter of 2003 (109.546) by 1999’s second quarter price
deflator (94.832).  The result of the calculation is 1.155159, which
represents an inflation rate of 15.52% from the second quarter of 1999
through the fourth quarter of 2003.  Multiplying the $750,000 figure by
1.155159 equals $866,369, which we rounded off to the nearest $10,000,
or $870,000.

		Certifying authorities need to carefully evaluate accounting
mechanisms that applicants may use to try to circumvent the PNW
threshold.  For example, if within two years of prior to or following an
application for certification, an applicant transfers assets (e.g., to a
family member or to a trust), the certifying authority should regard
those assets as continuing to count against the applicant’s PNW.

	Because we often receive questions on this point, we want to emphasize
that PNW is calculated separately for each individual who the applicant
business claims to be a disadvantaged owner and controller of the
business.  In a situation where there is more than one disadvantaged
individual involved in a business, PNW is not aggregated for the owners.
 It remains an individual-by-individual calculation.  It is never
necessary to obtain PNW statements from people who do not claim to be
disadvantaged individuals for purposes of ownership or control (e.g., a
white male who is a participant in the company).

3. Counting ACDBE credit for car rental companies.  The issue of how to
assign DBE credit to car rental companies is the longest-running, most
divisive issue in the history of Part 23.  Briefly stated, the issue
concerns situations in which a car rental company purchases an often
large number of cars (a “fleet purchase”) from a motor vehicle
manufacturer.  Typically, the vehicles themselves are transported
directly (“drop-shipped”) from the manufacturer (e.g., Ford or
General Motors) to the car rental company’s airport facility, never
physically touching the property of a car dealer.  However, usually
because of state laws that require vehicles to be purchased from a car
dealer, the transactions are invoiced through a dealer, who receives a
small fee for processing the paperwork.

	If the dealer in this situation is an ACDBE, how much ACDBE credit is
it appropriate for the car rental company to claim?  Is it the entire
value of the vehicle (many thousands of dollars) or merely the
transaction fee that the dealer receives (perhaps $50-200)?    Under
normal DBE counting principles, such as those of §26.55, the answer is
clearly the latter.  A DBE whose commercially useful function is limited
to processing or expediting a transaction, and who does not meet the
rule’s definition of a regular dealer with respect to the items in
question, receives only its fee or commission for the work it actually
does.  Even if it is acting as a regular dealer, credit is limited to 60
percent of the value of the goods purchased.

	However, subsection (e)(4)(B) of the ACDBE statute provides that “a
car rental firm shall be permitted to meet the [ACDBE goal] requirement
by including purchases or leases of vehicles from any vendor that
qualifies as” an ACDBE.  Car rental industry commenters have argued
strongly, in response to the 2000 SNPRM and its predecessors, that this
provision means that airports must count the entire value of cars
purchased via ACDBE car dealers, however contrary such a result would be
to the way DBE credit is counted in any other context.

	Prior to the 2000 SNPRM, trade associations for ACDBEs and car rental
companies made a joint recommendation to DOT to resolve the issue.  They
proposed that, of the first 10 percent of an airport’s
concession-specific goal for a car rental company, 70 percent could be
achieved by counting the full value of cars purchased through ACDBE
dealers, with the rest remaining 30 percent accounted for by other
purchases of goods and services from ACDBEs.  However, for any increment
of an airport’s concession-specific goal over 10 percent, the car
rental company could achieve all of that increment through counting the
full value of cars purchased through ACDBE car dealers.

.  The 2000 SNPRM proposed to adopt the recommendation, except for the
provision calling for being able to meet all  of the portion of a goal
exceeding 10 percent via counting the full price of cars purchased
through ACDBE car dealers.

	Comments to the 2000 SNPRM took a variety of positions on the proposal.

Three airports and an airport trade association opposed permitting car
rental vehicle purchases to count toward goals. Another airport said
that airports should get DBE participation by subcontracting with DBEs
that directly own a concession.  The airport trade association and four
airports opposed the “10 per cent” provision of the trade
associations’ recommendation, which the Department had not included in
the SNPRM.  A car rental trade association, on the other hand, insisted
that the Department must accept all provisions of the recommendation,
including the 10 percent provision, and the ACDBE trade association that
had joined in the recommendation continued to support it.

	In the SNPRM, the Department also proposed a two-goal structure, with
separate overall goals for car rental companies and all other
concessionaires, respectively.  As discussed later in this preamble, the
Department is adopting this proposal.  This provision has the important
benefit of preventing the often very large gross receipts of car rental
companies and potentially very high DBE participation dollar amounts
resulting from counting the full value of vehicles in toward DBE goals
from overwhelming DBE goals and participation in other areas of
concessions.  Having this separate goal for car rental companies
therefore significantly reduces the possibility of skewing the program
and limiting opportunities to other DBEs as the result of permitting car
rental companies to count the full value of vehicles purchased through
ACDBE car dealers.

	 For this reason, and in order to avoid any possibility of conflict
with the statute, the Department has decided that the final rule will
permit car rental companies to count the full value of vehicle purchases
from ACDBE car dealers.

We are not adopting the trade associations’ recommendation.  While we
appreciate the associations’ efforts to find a compromise resolution
to this issue, we believe that there is no sound basis for mandating the
proposed 70/30 division or for the use of the statute’s aspirational
10 percent goal to play an operational role in determining how ACDBE
credit is counted.  In fact, we believe the use of the 10 percent goal
in this way is inconsistent with a narrowly tailored ACDBE program.

	Nevertheless, the Department is concerned that this resolution of the
issue could have adverse effects on ACDBEs who seek to sell services or
goods other than vehicles to car rental companies.  Consequently, we are
requiringairports would require car rental companies to document to the
airport the good faith efforts they have made to obtain participation
from ACDBE vendors of goods and services (other than car dealers).
Airports would not set a numerical goal for the use of these vendors,
and there are many ways that car rental companies could make show good
faith efforts to this end.  One of these would might be for a car rental
company, as suggested by the trade associations’ recommendation, to
obtain 30 percent of its ADCBE credit from the use of ACDBE vendors of
goods and services, as suggested by the trade associations’
agreement..

4. Overall Goals.  In Part 26, the Department established a data-driven
overall goal-setting mechanism that directed recipients, including
airports, to establish a goal estimating the amount of DBE participation
that they would expect if there were a “level playing field” in
contracting, free from the effects of discrimination.

Recipients were also required to estimate how much of that goal could be
achieved through race-neutral means.  Recipients were permitted to use
race-conscious means, such as contract goals, only to obtain that part
of their overall goal they could not achieve through race-neutral means.
 The rule made clear that recipients were not to be penalized for not
making their overall goal, and that the statutory 10 percent goal was an
“aspirational” goal that did not affect the operation of
recipients’ DBE programs.  Since Part 26 was issued, every Federal
court that has considered the question has determined that this goal
setting mechanism is consistent with narrow tailoring requirements of
constitutional law.

	The 2000 SNPRM for Part 23 essentially proposed to adopt, in a somewhat
shortened form, the Part 26 goal-setting concepts.   In addition, the
SNPRM proposed a two-goal structure for concessions.  That is, airports
would set one overall goal for car rental companies and another overall
goal for all other concessions.  The purpose of this structure was to
ensure that the much larger dollar volumes and much broader counting
rules involved in the car rental industry at many airports did not so
skew the airport’s goal that other types of DBE businesses could not
benefit from the program.  The Department also sought comment on the
idea of having a nationwide goal for major car rental companies,
somewhat analogous to the transit vehicle manufacturer goal provision of
Part 26.

	Six airports, an ACDBE trade association, and an ACDBE favored, and one
airport and a consultant opposed, separate goals for car rental and
non-car rental activities.  A car rental association gave qualified
support to the idea, but commented that it thought that each airport
would need to make a separate compelling need finding with respect to
car rentals.  Five airports supported and one opposed allowing an option
for national car rental goals; ACDBE and car rental industry trade
associations expressed doubt that the idea was workable.  Another large
airport suggested separate goals for goods and services on one hand, and
direct ownership arrangements for car rental companies on the other.

An airport trade association and nine airports asked for greater
guidance and clarification on how the goal-setting system would work in
the concessions area, saying that such factors as the absence of data
comparable to the DOT-assisted contracting world and the difficulty of
integrating goods and services, management contracts, and direct
ownership arrangements under the same overall goal made implementation
very burdensome and confusing.  Three of these commenters plus an ACDBE
trade association said the same point applied to the race neutral/race
conscious split in the concessions context.  One airport supported the
NPRM as written.

One airport wanted to use set-asides for car rentals.  An airport trade
association wanted airports to be able to set goals based on the number
of concessions without going through a wavier procedure, and one airport
supported the waiver process.  A car rental industry traded association
argued that race-neutral methods must be used chronologically before
race-conscious methods could be used.

The Department believes that it is very important to include the
two-goal structure in the final rule.  We agree that it does, to an
extent, increase the administrative workload of airports.  However, it
recognizes the differences between the car rental industry and other
types of concessions, a difference that is meaningful in the context of
a narrowly tailored regulation.  Most important, in light of the
statutory provision concerning the counting of vehicle purchases as a
means of meeting car rental companies’ ACDBE goals, it avoids a
distortion resulting from the very large dollar amounts of participation
attributed to ACDBE car dealers that could otherwise dominate skew an
airport’s ADCBE program.

Having a separate goal for non-car rental activities will ensure that
retail businesses, management contractors, and other concessionaires
will have the opportunity to compete on a level playing field not only
vis-à-vis non-ACDBE firms, but also vis-a-vis firms in a very different
industry where ACDBE participation is counted very differently.   Having
a separate goal for car rental companies does not, in our view, require
a localized finding of discrimination pertaining specifically to the car
rental industries.  There is a national determination of compelling need
for the entire program, and a division of overall goals into two
segments for administrative purposes does not call for additional
findings of need for the program.

	Particularly given that courts have found that Part 26, including its
goal-setting mechanism, meets narrow tailoring requirements, the
Department believes it is essential to conform the Part 23 goal-setting
provisions as closely as possible to those of Part 26.  These
requirements are spelled out in greater detail here than in the 2000
SNPRM, which should assist airports in complying with them.  We also
give airports from 1-3 years to establish new goals, which should allow
them time to complete the work involved.  Of course, by this time,
airports have had five years’ experience in working with Part 26
goals, and so using a parallel mechanism in Part 23 should be an easier
and more familiar exercise than it might have seemed in 2000.  We would
also call airports’ attention to the goal-setting “Tips” on the
Department’s DBE web site (http://osdbuweb.dot.gov/business/dbe/tips
.html).  The Department plans to develop a revised version of these Tips
specifically pertaining to airport concessions in the near future.

	Because the Department believes it would be difficult to devise an
overall goal based on the number of concession businesses or contracts,
as distinct from the receipts of concession firms, the final rule does
not include the provision allowing recipients to seek waivers to
establish a goal on that basis, as the 2000 SNPRM proposed.   However,
airports can use the program waiver provision of §23.9 13 (which cross
references the procedures of §26.15) to request authority to use a
goal-setting mechanism that differs from that of Subpart D of Part 23.

	While the idea of a transit vehicle manufacturer-like nationwide goal
for large car rental companies remains intriguing, the Department is
persuaded by comments that it would be difficult to implement.
Therefore, we are not including this concept in the final rule. not sure
that this approach is feasible.  Therefore, rather than include such a
provision in the final rule, we are asking for further comment on this
subject in the SNPRM.   Set-asides and quotas are not an appropriate
part of a narrowly tailored rule, and Part 23 prohibits airports from
using these measures.

	The argument that recipients must, in a chronological sense, use
race-neutral methods before they can use race-conscious methods has been
raised in litigation under Part 26.  It has not prevailed.  Nor does it
make sense as policy.

Airports are required to give priority to the use of race-neutral means,
meaning that they must achieve as much as possible of their overall
goals through race-neutral means.   The utility of race-neutral means,
or the necessity of race-conscious means, is likely to vary throughout
the year as different sorts of business opportunities occur.  For
example, obtaining ACDBE participation in one business opportunity in
February of a certain year may require race-conscious measures, while an
excellent race-neutral opportunity may occur in November of that year.

Section-by Section Analysis

	This portion of the preamble discusses, in turn, each section of the
final rule, providing, as appropriate, responses to comments, additional
information about the Department’s rationale for adopting individual
provisions, and the Department’s intent for how the provisions should
be interpreted and implemented.

§23.1  What are the objectives of this part?

	The objectives of this program are very similar to those stated for
Part 26.  Extensive information has been developed over the years, which
may be found in such sources as disparity studies of which the
Department is aware and data presented to Congress (e.g., in the context
of the floor discussion of the 1998 reauthorization of the DBE program
for Federal Highway Administration and Federal Transit Administration
financial assistance) that supports the proposition that there is not a
level playing field for small disadvantaged businesses in the U.S.  The
legislative history of the original ACDBE statute itself shows that
Congress was very concerned that DBE firms had the “fair” (i.e.,
nondiscriminatory) access to concession opportunities (see 133
Congressional Record 25986-87; October 1, 1987).

 Under Part 26, many airports have had to continue race-conscious
methods to achieve their overall goals, which are in turn a measure of
the level of DBE participation they could expect absent the effects of
discrimination.   There is no reason to believe, and no one has
submitted any information to the Department’s rulemakings to suggest,
that airport concession programs are exempt from the effects of
discrimination to which other public sector business activities at
airports and elsewhere are subject.   Race-conscious methods continue to
be a necessary part of a narrowly tailored strategy to ensure
nondiscrimination in concessions.

	In addition to this basis for the compelling need for the ACDBE
program, there is a second basis for concluding that there is a
compelling need:  the need to ensure diversity among participants in the
program.  The legislative history of §47107(e) reflects Congress’
commitment to this objective.  For example, in the House floor
discussion of the bill that became §47107(e), Congressman Richardson
said that

Another…reason for increasing minority participation in airport
concessions is to provide variety to airport operations.  It has gotten
to the point that the services provided in any major airport are
identical to all other airports...If the marketplace is not ready to
replace this oligopoly, we in Congress are justified in opening the
concession business to different groups.  (Id.)

Congresswoman Collins, the sponsor of the legislation, noted that

As airports continue to expand across the country, more and more
opportunities are becoming available for businesses which provide
consumer goods and services….I believe that there should be at least a
minimum level of commitment to…small minority and women-owned firms.
To date, this commitment simply has not been made…My amendment would
open up business opportunities to minorities and females….  (Id.)

When ACDBEs are fairly represented among concessionaires, as well as
larger, often nationwide, businesses, then the airport-using public has
greater access to a variety of services and types of businesses to meet
their varied needs.

§23.3 What do the terms used in this Part mean?

	Most of the comment on this section concerned the issue of whether
advertising firms should be included in the definition of
“concession.”  A substantial number of letters from mostly
small-to-medium sized airports supported including advertising
companies.  One large airport opposed doing so.  Three of the comments
favoring advertising suggested limitations.  One said that only
billboards on public access roads to the terminal or other facilities
for travelers should count.  Another said only in-terminal ads should
count.  The third said that only companies “primarily” in the
business of advertising in terminals should be viewed as concessions (as
opposed, for instance, to telecommunications or internet companies whose
terminal ads were tangential to their main business).

	While the existing Part 23 does not explicitly address the issue, many
airports have certified advertising firms as DBEs for many years.
Advertising appears to be a field in which DBE firms have had some
success.  It is also a field in which small businesses, including
ACDBEs, must often compete against very large corporations.  The level
playing field that Part 23 attempts to provide is of considerable
importance to firms in that position.

	Like management contractors and some providers of telecommunications
services, advertising firms often do not have stores located on the
airport.  Nevertheless, firms of these kinds provide important services
to members of the public who use the airport.  These firms have the
objective of selling products to the public, and their existence at
airports provides services to the public.  They have financial
relationships with the airport similar to those of more traditional food
and retail concessions.  We do not believe it would be sound policy, or
required by law, to oust advertising firms from the ACDBE program.
Consequently, to avoid confusion, we have explicitly included such firms
in the “concession” definition.  We do not think it would be useful
to limit their participation to a particular advertising location on the
airport, such as terminals or billboards along access roads; the legal
and policy situation of one such location is not readily distinguishable
from others.

	Consistent with the 1992 amendment to the statute, the definition of
“concession” now specifically includes firms with management
contracts or subcontracts and businesses that provide goods and services
to other concessionaires.  Of course, businesses of this kind must be
certified as ACDBEs in order to generate ACDBE credit in this program.

	The definition of an ACDBE is consistent with that of Part 26.  With
some exceptions, the certification provisions of Part 26 apply to
ACDBEs.  Some comments addressed the provision of certification
standards stating that an ACDBE must be an existing business.  Four
large airports opposed this requirement (one suggested that a firm could
be certified based on its business plan).   Their main rationale was
that the requirement would be a barrier to new businesses.  One large
airport supported the requirement.  We believe that it is important to
retain this requirement, in order to ensure that only genuinely eligible
businesses are certified as ACDBEs.  When a business is still in the
process of formation, it is all the more difficult to determine whether
disadvantaged individuals really own and control it.  It is difficult to
make a site visit to a business plan.  Given the increased emphasis on
preventing DBE fraud, we believe that the existing business requirement
is essential.  At the same time, as under Part 26, it is not appropriate
to refuse to certify a business solely because it is a new business, but
it must exist.

	A car rental association continued to advocate the position, which it
had taken in comments on previous proposed rules, that so-called
“dealers in development” (i.e., dealers participating in
manufacturers’ development programs that did not fully meet Part 23
ownership and control criteria, such as 51 percent ownership by
disadvantaged individuals) should be certified as ACDBEs.  In the
preambles to its 1997 and 2000 proposals, the Department had explained
at some length why we concluded that a business that did not meet
generally applicable DBE ownership and control criteria should not be
certified as an ACDBE.  Nothing in the comments in the docket for this
rulemaking has provided a persuasive reason to change the Department’s
position.

	Concession businesses must serve the public on the airport.  Airport
and ACDBE trade associations, one business, and nine airports supported
the consequent concept that businesses on airport property that do not
primarily serve travelers should not be counted as concessions.  One
commenter suggested waiving this requirement for small airports in
Alaska.  We agree that businesses that do not primarily serve the public
should not be viewed as concessions.  If one or more small businesses or
airports in Alaska wish to seek a waiver from this provision, they may
apply under the provisions of §23.913.

	One commenter asked whether management contracts included contracts for
the management of hotels on the airport.  While it is not necessary to
include this level of detail in the regulatory text, we see no reason to
believe that hotel management contracts would be treated differently
from any other kind of management contracts.   In evaluating the whether
a management contractor provides a commercially useful function and the
amount of ACDBE credit that should be given for the contractor’s work,
an airport should scrutinize carefully the actual tasks performed by the
ACDBE as an entity to make sure that they are consistent with the credit
claimed.

	One large airport suggested that the joint venture definition not
require that the DBE partner perform an independent part of the work,
arguing that concessions joint ventures did not operate in this way.  We
have become aware that some concessions joint ventures indeed do not
involve an ACDBE performing an independent part of the work; some of
these have been the focus of fraud investigations by the Department’s
Inspector General and other law enforcement organizations.  If the ADCBE
participant is not required to perform independently a distinct portion
of the joint venture’s work, it becomes very easy for a prime
concessionaire seeking to circumvent ACDBE requirements by having an
ACDBE “silent partner” on its payroll.  We believe that changing
this provision would adversely affect the integrity of the program.
Because joint ventures have become a problematic part of the ACDBE
program, the Department is drafting additional guidance on the subject,
which we intend to post on the DOT DBE web site as soon as it is
available.

	We also note that UCPs and airports should not certify joint ventures
themselves as ACDBEs, and the definition makes this point explicit.   By
definition, a joint venture is an association of an ACDBE and another
firm to carry out a single business enterprise.  As noted in Part 26
(§26.73(e)), “[a] n eligible DBE firm must be owned by individuals
who are socially and economically disadvantaged… [A] firm that is not
owned by such individuals, but instead is owned by another firm -- even
a DBE firm -- cannot be an eligible DBE. “   Even if a joint venture
is more than 51 percent owned by a ACDBE firm, therefore, the joint
venture – because it is owned by other firms, not directly by
disadvantaged individuals -- cannot be an eligible ACDBE firm.  (This
same point applies to DBEs under Part 26.)  We note that, given the
counting rule for joint ventures in Parts 23 and 26, this fact should
not make any difference in the way that ACDBE credit is counted.
Credit toward DBE goals is awarded under both rules only for the
distinct, clearly defined portion of the work of the joint venture
performed by the DBE or ACDBE participant, regardless of the
certification status of the joint venture entity.  In reviewing
currently certified firms (see §23.31(c)), airports and UCPs should
remove joint venture entities (though not certified DBE firms that
participate in joint ventures) from their directories,  consistent with
this direction.

The other definitions are consistent with those in Part 26 and have not
changed substantively from the 2000 SNPRM.  They were not the source of
additional comment.  We have added, for administrative purposes,
definitions of small, medium, large hub, and non-hub primary airports.

§ 23.5  To whom does this part apply?

	This section recites that Part 23 applies to airports that have
received FAA financial assistance for airport development since January
1988, when the Department’s airport concessions DBE rules first went
into effect.  Note that, under §23.1121, not all airports covered by
Part 23 are required to have an ACDBE program.

§23.7  How long do the provisions of this part remain in effect?

	The Department is introducing a “sunset” provision into the final
rule as a way of addressing the durational element of narrow tailoring.
A narrowly-tailored rule is not intended to remain in effect
indefinitely.  Rather, the rule should be reviewed periodically to
ensure that it continues to be needed and that it remains a
constitutionally appropriate way of implementing its objectives.
Consequently, this provision states that this rule will terminate and
cease being operative in five years, unless the Department extends it.
We intend, beginning four years from now, to review the rule to
determine whether it should be extended, modified, or allowed to expire.
 Of course, the underlying DBE statute remains in place, and its
requirements continue to apply regardless of the status of this
regulation, absent future Congressional action.

§ 23.7  9  What are the nondiscrimination and assurance requirements of
this part for recipients?

	This section cross references the nondiscrimination requirements of
Part 26 and provides the text of assurances that airports must include
in concession agreements and management contracts in the future.  The
section does not require airports to revise existing contracts to
include the assurance text.

§23.11  What compliance and enforcement provisions are used under this
part?

	This section recites that standard FAA/DOT enforcement procedures –
the same ones used for Part 26 – apply to Part 23.

§ 23.9  13  How does the Department issue guidance, interpretations,
exemptions, and waivers pertaining to this part?

	This section parallels, and cross references,   Part 26, §26.15,
concerning guidance, interpretations, and exemptions and waivers.
Program participants should note that guidance provided concerning
existing Part 23 should not be relied upon in the future, given the many
changes made in this final rule.  The Department will issue new or
revised guidance concerning the revised Part 23.

§23.11  21  Who must submit an ACDBE program to FAA, and when?

	The basic threshold trigger for the requirement to have for having an
ACDBE program is being a primary airport and receivingreceiving $250,000
in FAA financial assistance.  Other categories of airports (e.g.,
non-primary or general aviation airports) do not have to submit an ACDBE
program.  Airports who that currently have a DBE program under the
existing Part 23 must update their programs to meet the requirements of
this new rule.  They will do so on the same three-year staggered
schedule provided for submission of ACDBE goals (i.e., this yearnext
January for large and medium hubs, next year  for small hubs, and the
following year for non-hub primary airports).

	Until FAA approves revised programs, airports will continue to use
their existing concessions DBE programs.  Airports should review their
programs immediately to ensure that they do not contain any provisions
that are contrary to this part, however.  For example, this part
prohibits the use of set-asides.  If an airport’s current program
provides for the use of set-asides, that provision should be deleted at
once, even though the airport’s revised program is not due be
submitted to FAA until one to three years from now.

	Airports that do not get $250,000 in grant funds, and other categories
of small airports (e.g., non-primary or general aviation airports) do
not have to submit an ACDBE program.  If a primary  airport that does
not now receive $250,000 in grant funds, but it applies for a grant of
that size, it will have to submit an ACDBE program with its application.

§23.13  23  What administrative provisions must be in a recipient’s
ACDBE program?

§23.15   25   What measures must recipients include in their ACDBE
programs to ensure nondiscriminatory participation of ACDBEs in
concessions and other covered activities?

	Section 23.13 23 provides a structure for a recipient’s ACDBE program
that is parallel to that for Part 26 DBE programs.  Indeed, where an
airport must have both an ACDBE program and a DB E program, the
administrative provisions can be combined to a considerable degree.

	Section 23.15 25 requires goal-setting as provided in Subpart D of Part
26, the use of race-neutral measures by airports themselves to obtain
DBE participation, and the use of race-conscious measures like
concession-specific goals when race-neutral measures standing alone are
not sufficient to meet overall goals.  Airports are expected to include
the race-neutral and, if needed, race-conscious measures they will
implement in the ACDBE programs they submit to the FAA.   The section
notes that concession opportunities are to be sought in all areas of the
concession industry, so that different kinds of businesses have the
chance to participate.  It is not appropriate to have a single area of
concessions or a few firms so dominating ACDBE participation that others
lack a realistic opportunity to help meet the overall goal.

	Section 23.25(f) is a new paragraph incorporating the last clause of
subsection (e)(3) of the statute.  Paragraph (f) provides that an
airport’s ACDBE program “must require businesses subject to ACDBE
goals at the airport (except car rental companies) make good faith
efforts to explore all available options to meet goals, to the maximum
extent practicable, through direct ownership arrangements with DBEs.”
Both in the statute and in paragraph (f), this requirement operates in
the context of the ability of airport businesses to meet ACDBE goals
through the purchase of goods and services from ACDBE vendors.  While
meeting goals through the purchase of goods and services is authorized,
it is important for ACDBE goals to encourage the participation of ACDBEs
in a variety of ways.  It is a healthier situation for ACDBE programs,
for example, if ACDBE participation a business or airport comes not only
through goods and services purchases but also through individual
concessions run by ACDBEs.

The parenthetical “except car rental companies” reflects another
provision of the statute (subsection (e)(4)(C)),  which provides that
car rental firms are not required to change their corporate structure to
provide for direct ownership arrangements.  This means, for example,
that car rental companies that operate corporation-owned stores cannot
be required to obtain ACDBE participation through such means as
subleases or joint ventures.  This limitation does not apply to non-car
rental concession businesses, however.  Even if a non-car rental
business (e.g., a news and gift shop company) normally operates
corporation-owned stores, direct ownership arrangements with ACDBEs that
might alter or create an exception to the firm’s normal way of doing
business are among the options the business must make good faith efforts
to explore under this provision.

§23.17  27  What information does a recipient have to retain and report
about implementation of its ACDBE program?

	Recipients must save compliance information for three years.  Beginning
December 1, 2004March 1, 2006, recipients will submit a report of ACDBE
participation (see Appendix A).  The report is based ona modification of
the Part 26 reporting form that the Department issued in June 2003, with
modified instructions for adapted for purposes of the ACDBE program.

§23.19  29  What monitoring and compliance procedures must recipients
follow?

	Ensuring that participants in the ACDBE program comply with the
requirements of this rule and preventing fraudulent activities in the
program are among the most important responsibilities of recipients.  It
is not enough merely to set goals and award concessions; airports must
make sure that promised ACDBE participation really occurs after award
and that participants are not able to circumvent the requirements of the
program to the detriment of actual ACDBE participation.  Each ACDBE
program must include the monitoring and compliance measures the airport
will use, including levels of effort and resources devoted to this task.
 For example, the program would describe the frequency of reviews of
records, on-site reviews of concession workplaces, etc. to determine
whether ACDBEs are actually performing the work for which credit is
being claimed and that participants are not circumventing program
requirements.  This kind of oversight is crucial to combating ACDBE
fraud, and FAA will closely scrutinize this aspect of ACDBE programs to
ensure that levels of effort are sufficient.

In addition, if an airport includes additional provisions beyond what
Part 23 requires (see §23.77), FAA has a responsibility to review such
provisions and work with airports to ensure that additional provisions
do not create policy or legal problems.  FAA will reject program
submissions that are inconsistent with Part 26.

	As provided in the ACDBE statute, Federal law does not preclude
airports from including additional provisions that affect
concessionaires, beyond what Part 23 requires.  However, if an airport
does so, it must include in its ACDBE program the state or local legal
authority it relies on the additional provisions.  FAA has a
responsibility to review such additional provisions and work with
airports to ensure that additional provisions do not create legal or
policy problems.

Subpart C – Certification  of ACDBEs

	Certification under Part 23 basically follows the model of Part 26,
with the exception of those areas – such as size standards, discussed
above – in which the Department recognizes differences in the ACDBE
and DOT-assisted contracts marketplaces.  Firms certified under Part 26
are eligible under Part 23 as well, provided they can control the firm
with respect to the concession activities involved.   Part 26
certification standards and procedures – even if not specifically
referenced in Part 23 – are intended to apply to the ACDBE program
except where otherwise provided.

	Section 23.29 39 mentions a number of other differences between Part 23
and Part 26 certification.  These differences are self-explanatory, for
the most part.  The reason for not applying Part 26’s special
provision for Alaska Native Corporation-owned firms is that the statute
requiring this provision in DOT-assisted contracts does not apply in the
ACDBE context, since this context does not involve DOT-assisted
contracts.

	The eligibility of joint ventures has been a continuing problem under
the ACDBE program, including both eligibility and operational issues
that have called the legitimacy of joint venture arrangements into
question.  The Inspector General has pointed to situations in which
joint ventures or similar arrangements appear to have been used as a
subterfuge by firms seeking to evade or defraud the program.  The
rule’s definition of joint ventures makes explicit that these entities
should not be certified as DBEs in their own right.  As noted above, the
Department is planning to make available additional guidance concerning
the use of joint ventures in the ACDBE program, including certification
issues pertaining to joint ventures.

	When the rule says that suppliers of goods and services to
concessionaires are to be evaluated for certification as ACDBEs
according to the provisions of this part (§23.2939(i)), we mean that
Part 23 provisions (e.g., concerning personal net worth and business
size) are to be used for this purpose.   Firms that provide goods and
services to concessionaires are not subject to the somewhat different
certification provisions of Part 26.

	In certain respects, particularly with respect to personal net worth,
this rule changes the eligibility criteria for ACDBEs.  Consequently,
airports or UCPs, are required to review the eligibility of currently
certified firms.  These reviews must take place within three years of
the most recent certification of the firm, or a year from the rule’s
effective date, whichever comes later.  Any firm that loses eligibility
because of the new PNW requirements would be able to complete work on an
existing contract or other concession agreement, with its participation
counted toward ACDBE goals.  Options, extensions, renewals, etc. of the
firm’s participation beyond the termination of the agreement in force
at the time of the firm’s decertification would not count as DBE
participation, however.

	We emphasize that Part 26 standards do apply to certifications under
Part 23 for most aspects of ownership and control.  For example,
absentee ownership of firms raises the same control issues in a Part 23
context as it does in a Part 26 context (see §26.71(j)).  Also, as the
definition of “concession” now explicitly provides, recipients
should not certify holding companies as ACDBEs.  Holding companies do
not perform concession activities.  While holding companies may play a
narrow role in DBE and ACDBE firms (see §26.73(e)), the holding
companies themselves are not certified in this role.  Recipients should
pay careful attention to affiliation relationships between and among
holding companies and their concession subsidiaries. It is likely that,
when a concession that is owned by a holding company seeks
certification, the concession is affiliated with both the holding
company itself and other subsidiaries of the holding company.  These
relationships can have important effects on the ability of the applicant
firm to meet size standards.

Recipients should also pay close attention to affiliation relationships
that may arise in joint venture arrangements.  If one participant in a
joint venture – or other business arrangement – exerts too much
control over the business decisions and operational activities of
another, then there may be an affiliation relationship between the two
and/or an issue of whether the second firm is sufficiently independent
to be certified.

	On-site reviews are a key part of the concession certification process.
 The Department realizes that, particularly for a concession that does
not yet have a location established on an airport, it may be difficult
to identify a “job site” at which to conduct such a review.  In this
case, recipients could conduct the on-site review solely at the firm’s
headquarters or other principal place of doing business.

	At the time that this rule is being issued, not all states have
approved unified certification programs (UCPs).   Until a UCP is
approved and in operation for a given state, individual airports in that
state continue to have responsibility for certifying ACDBEs.  Once a UCP
is approved and in operation in a state, certification of ACDBEs becomes
the responsibility of the UCP, rather than of individual airports.

§23.31  41  What is the basic overall goal requirement for recipients?

	Having overall goals is a basic requirement of airports’ ACDBE
programs, without which airports are not eligible for FAA financial
assistance.  Overall goals cover periods of three years, rather than one
year as in the case of Part 26, in recognition of the longer time frames
involved in concession relationships between businesses and airports.
As discussed above, recipients are required to have two separate overall
goals:  one for car rentals, and one for all concessions other than car
rentals.

There is an important exception to this general rule, designed to reduce
administrative burdens on airports that have little or no concessions
activity.  If an airport has less than $200,000 in concessions revenue
(averaged over three years), in either the car rental or non-car rental
category, then the airport does not have to submit an overall goal in
that category.  The Department believes that requiring airports that
have little or no concession revenues to pursue the overall-goal setting
process is likely to be unproductive, if not altogether futile.  At the
same time, this provision focuses ACDBE goal- setting efforts on those
airports where it isthese efforts are most likely to result in
meaningful ACDBE participation.  Airports that did not have to set an
overall goal for one or both categories would still be required to
puruse pursue race-neutral means to provide opportunities for ACDBEs in
their concessions activities.

This determination is made separately for each of the two overall goal
categories.  For example, suppose Airport X has had non-car rental
concession revenues of $150,000, $200,000, and $175,000 in 20012002,
20022003, and 20032004, respectively.  Under this rule, it would not
have to submit a non-car rental overall goal in 20042005, because its
averagethe average of its non-car rental revenues over the preceding
three years was less than $200,000.  On the other hand, if Airport X’s
average car rental concession revenues were $300,000 for the same
period, it would have to submit an overall goal for car rentals in
20042005.

Based on recent FAA data, virtually all larger airports (large and
medium hubs) would have to submit both overall goals.  These airports
account for the vast majority of all concession revenues in both the car
rental and non-car rental categories.  Among intermediate-size airports
(small hubs), all but five of 69 would have to submit car rental goals,
and 50 of the 69 would have to submit non-car rental goals.  Among 390
small airports (non-hubs), 309 would not have to submit car rental goals
and 233 would not have to submit non-car rental goals. Many of these
small airports (165 with respect to car rentals, and 92 with respect to
non-car rental concessions) report no concession revenues in those
categories.

As under Part 26, goals must be for DBEs in general, as opposed to
group-specific goals for one or another subgroup of DBEs.  Also as under
Part 26, airports can apply for a program waiver of this provision if,
based on evidence (e.g., from a disparity study) showing
underutilization only of certain groups, they believe that use of
group-specific goals is necessary to achieve the objectives of a
narrowly-tailored program.

§23.33  43  What are the public participationconsultation requirements
in the development of recipients’ overall goals?

§23.35  45  What are the requirements for submitting overall goal
information to the FAA?

	The process of setting overall goals includes consultation with
stakeholders in the ACDBE program.  A public comment period, as such, is
not required, however.  In the Department’s experience with Part
26’s requirement for a comment period, few comments have been received
my by most recipients. We do not believe that such a requirement would
be productive in the concessions context, which is even more specialized
and less likely to be the subject of meaningful comment from anyone
except stakeholders, who are covered by the consultation requirement.

The rule requires recipients to submit overall goals every three years.
In order to give smaller airports more time to work with the
goal-setting process, we are establishing a three-year staggeredthe
following schedule for submitting new overall goals and new ACDBE
programs:  this yearJanuary 2006 from new Part 23’s effective date for
large and medium hubs, next yearOctober 2006 for small hubs, and the
following yearOctober 2007 for smaller primary airports.   Revised goals
are then due October 2006, 2007, and 2008, respectively, and every three
years thereafter.  If an airport changes status (e.g., a small hub
increases in size to become a medium hub), it will stay on the original
schedule.  This will also mean that FAA will not have to focus on
reviewing goals from all airports in any one year, making its review
process more efficient.  In the time before an airport has its first new
goals under this rule approved by FAA, it must continue using its
existing goals.

Some airport commenters asked for additional flexibility in terms of
submission dates for goals (e.g., with respect to airports’ fiscal
years, which differ from the Federal fiscal year in some cases).  In our
view, it is not as necessary to tie the submission of concessions goals
to fiscal years as it may be for Part 26 goals, since the latter are
more dependent on contracting under a particular fiscal year’s Federal
funds.  However, if an airport has difficulty with the standard goal
submission dates in the final rule, it can ask FAA for a program waiver
to establish a different date for its submissions.

§23.37 47 What is the base for a recipient’s goal for concessions
other than car rentals?

§23.39   49   What is the base for a recipient’s goal for car
rentals?

	Section 23. 37 47 concerns the base for the first of the two overall
goals that airports must set.  The base for this goal includes the gross
receipts of all concessions at the airport, with three important
exceptions.  First, as the title of the section indicates, the receipts
of car rental concessions are not counted in the base for this goal.
Secondly,  companies’ receipts that are not generated from concession
activities do not become part of the base.   In the example provided in
the regulatory text, the receipts generated by a restaurant in the
terminal are added to the base, while the receipts of the same food
service company’s flight catering activities are not.

The third exception is statutory, required by the plain language of  49
U.S.C. 47107(e)(2).   Under this statutory provision, the dollar amount
of the management contract or subcontract with an ACDBE and the gross
receipts of a business activity to which such a management contract or
subcontract pertains are added to the base for this goal, while the
dollar amount of the management contract or subcontract with a non-ACDBE
firm and the gross receipts of business activities to which such a
management or subcontract pertains are not.

Section 23.29 49 concerns the second of the two goals, that for car
rentals.  It is straightforward:  the base for this goal includes the
total gross receipts of car rental operations at your airport, and
nothing else.  In setting car rental goals, airports may take into
account the way in which car rental participation is counted, so that
goals remain proportional to the type of participation submitted by the
car rental companies.

§23.41  51  How are a recipient’s overall goals expressed and
calculated?

	This section concerns the very important subject of airports’
calculation of overall goals.  It applies to both to the overall goal
for car rentals and the overall goal for other concession activities.
It is designed to parallel the goal-setting mechanism of Part 26, which
has withstood a number of legal challenges.

	We recognize that, particularly for some large airports, it is possible
that the market area for many types of concessions could be nationwide
in scope.  Even some of the smaller airports may have national or
regional market areas in some or all of their concession categories.  As
the Department develops goal-setting guidance for airports, we will
explore, in cooperation with the Census Bureau and airports, whether it
would be possible to establish national availability estimates in
particular categories.   If this approach proves feasible, it would
allow the Department to go ahead and set availability estimates in a
number of industry categories, which could allow concerned airports to
could simply use those estimates with whatever weights are appropriate
for each airport.

	We are aware of the concern some airport commenters expressed about the
utility of existing data to set goals for concessions.  In this context,
it is important to remember that what the rules call for is the best
available data.  The rules do not demand perfect data.  It is likely
true that Census data and the NAICS codes do not specify what firms are
willing to work in the airport context.  This, of course, is also true
in the FederallyDOT-assisted contracting context.  For example, the
NAICS codes do not tell us which florists are willing to be florists at
airports.  By the same token, the codes do not indicate which heavy
construction firms are willing to perform heavy construction at
airports.  Despite this, we still use the NAICS codes to provide an
indication of availability in the construction context, and we can use
the same codes in the florist context as well.

Looking at the Census Bureau’s County Business Patterns database, it
appears that that the primary codes most likely to be useful to airports
will probably be 44 (Retail Trade) and 72 (Accommodation and food
services).  Both of these categories break down into 6 digit codes in
most (even small) metropolitan areas and counties.  For instance, 44
includes tape, CD and pre-recorded music stores (451220), florists
(453110), and gift, novelty and souvenir stores (453220).  NAICS code 72
includes, among other things, cafeterias (722212), full-service
restaurants (722110) and drinking places (alcoholic beverages) (722410).

We would point out that even some specialized types of business that
operate as concessions have NAICS codes of their own (e.g., 812113 for
nail salons and 454210 for vending machine operators).  Even shoeshine
kiosks, which do not have a specific NAICS code, can be included a
broader category of “other personal services.”  The fact of the
matter is that these categories are probably more specific than the
categories available for construction and other activities frequently
used under Part 26. We see no reason that the census Census databases
and NAICS codes cannot be used for goal-setting under Part 23.

One potential problem that we would ask airports and UCPs to address is
the potential under-representation of ACDBEs in directories.  That is,
program participants have expressed concern that, because concession
opportunities occur less frequently than Part 26 contracting
opportunities, and because certification offices may have been more
focused on Part 26 contracting, fewer ACDBEs may appear on some
certification lists.  This could lead, in turn, to Step 1 relative
availability calculations being unrealistically low.  The Department
recommends that airports and UCPs conduct outreach activities to
encourage potential ACDBEs to seek certification.  Airports could also
augment their counts of available DBEs with firms in local MBE/WBE
directories and Part 26 DBE directories (i.e., with respect to firms on
those lists in concession-relevant NAICS codes), or trade association
lists.  Moreover, airports, to the extent they have evidence of ACDBE
under-representation in directories, airports could use this evidence as
part of a Step 2 adjustment.

The regulatory text does not use the term “bidders list” that Part
26 uses.  Rather, Part 23 uses the term “active participants list.”
This is because “bidding,” in the sense the term is used in
FederallyDOT-assisted contracting, is often not used in the concessions
context.  In any case, the idea is to identify interested firms and
build a list from that source.  It is likely that many airports may have
a strong sense of those firms that are likely to be interested in
seeking concession opportunities.  Their information comes from a number
of sources, such as past experience with firms that have run concessions
or sought concession contracts or leases, knowledge about the universe
of firms in certain areas of retail and food and beverage service that
tend to be interested in participating in airport concessions, and
attendance lists from informational and outreach meetings about upcoming
concessions opportunities.  While these sources do not represent bidders
lists in the traditional sense, they appear feasible to develop and can
provide a good source of availability data.

When the rule says that an airport can use the goal of another recipient
as the basis for Step 1 of its goal-setting exercise, it should be noted
that this concept is not necessarily limited to other airports in the
same geographical area.  For instance, suppose a large airport on the
East Coast and a large airport on the West Coast both have a national
market area for certain types of concessions.  With appropriate
adjustments for differences in local market areas and the airports’
concession programs, these two airports might be able to use the same
analysis in setting their goals.

§23.43  53  How do car rental companies count ACDBE participation
toward their goals?

§23.45  55  How do recipients count ACDBE participation toward goals
for items other than car rentals?

	Section 23.43 53 addresses the issue of counting ACDBE participation
for car rental companies, which is discussed at length under “major
issues” above.  Section 23.45 55 is the counting provision for other
types of concessions, and it generally follows the counting provisions
of Part 26.  For example, when an ACDBE enters into a sub-concession
agreement or lease with a non-ACDBE, the part of the work performed by
the non-ACDBE is not counted toward goals.  One exception to this
pattern concerns regular dealers.  Under Part 26, recipients may count
toward goals only 60 percent of the value of goods purchased from DBE
regular dealers.  Under this section, however, recipients may count 100
percent of the value of items purchases from an ACDBE regular dealer.
This difference is based on the greater role that goods and services
purchases play in the concessions context and a lesser concern that
overuse of goods and services purchases will distort opportunities for
other contractors.  In response to a question from a commenter, goods
and services purchased from ACDBEs by management contractors would also
count toward goals, assuming that the goods and services are used for
the management contractor’s operations at the airport.  This section
also includes a few provisions peculiar to the concessions context, such
as a provision directing that so-called “build out” costs of a
concession not be counted toward ACDBE goals.

	We wish to emphasize the provision of this section concerning counting
the participation of ACDBE participants in joint ventures.  Credit may
be counted only for the independent, distinct portion of the work
performed by the ACDBE with its own forces.

It is very important to avoid overcounting the value of the ACDBE’s
participation.  For example, suppose a joint venture asserts that the
portion of its work performed by the ACDBE participant involves the
performance of professional or back office services.  The joint venture
claims credit amounting to 30 percent of its gross receipts for this
function.  If the business sought similar legal, accounting, payroll,
personnel administration, etc. services from an outside firm, would the
fees paid the outside firm amount to around 30 percent of its gross
receipts?  If not, then it is likely the joint venture is overvaluing
the contribution of the ACDBE participant, and the airport should not
count all the DBE credit requested.

As a policy matter, we believe it is preferable for ACDBE joint venture
participants to actually have a defined role in the revenue-generating
activities of the business (e.g., the joint venture runs four food
service locations in the airport, and the ACDBE is directly responsible
for one of them).   There is a greater likelihood of confusion,
counting, and other administrative difficulties, as well as of abuse,
when ACDBE participation is claimed for joint ventures in which the
ACDBE participant has only a vaguely defined role in the entity as a
whole.

§23.47   57   What happens if a recipient falls short of meeting its
overall goals?

§23.49  59  What is the role of the statutory 10 percent goal in the
ACDBE program?

§23.51  61  Can recipients use quotas or set-asides as part of their
ACDBE programs?

	These three sections emphasize that recipients are not penalized for
failing to meet their overall goals (i.e., failure to “hit the
number”), that the statutory 10 percent goal is an aspirational goal
that does not play an operational role in airports’ ACDBE programs,
and that the use of quotas and set-asides is forbidden.  All three
provisions are taken from Part 26 (except that the prohibition on the
use of set-asides has been strengthened), where they have been part of
the narrowly-tailored approach to the DBE program that the Federal
courts have approved.

§ 23.61  71  Does a recipient have to change existing concession
agreements?

	This section emphasizes that the changes in Part 23 do not require
airports to change or abrogate existing concession agreements with
private businesses.  A few commenters had asked for reassurance on this
point.  However, airports must take advantage of opportunities that
arise at the time of the renewal, modification, or extension of existing
concession agreements to obtain a modified amount of ACDBE participation
in the renewed or amended agreement.

§23.63  73  What requirements apply to privately-owned or leased
terminal buildings?

	This provision is virtually identical to the version in the 1997 and
2000 proposals.  We did not receive any comments on it.

§ 23.65  75  Can sponsors recipients enter into long-term, exclusive
agreements with concessionaires?

	This provision continues the long-standing requirement that long-term,
exclusive leases are prohibited, except where the sponsor airport
obtains FAA approval.  The section includes a procedure for obtaining
such approval, including a list of information FAA needs before it can
grant this approval.   ACDBE participation is a key part of this
information.   Comments on the various proposed  versions of this
section generally favored requiring opportunities for DBE participation
as part of a long-term, exclusive lease arrangement.  Consistent with
the Department’s prior proposals, only FAA approval under this section
will be needed for long-term exclusive leases.  DOT approval through an
exemption process will no longer be required.

	One airport suggested making 10 years rather than 5 years the criterion
for a long-term exclusive lease subject to this section.  We have not
adopted this comment because doing so would reduce the degree of
oversight FAA can exercise under the rule to make sure that long-term
concession agreements include adequate ACDBE participation.

	FAA is currently working on revised guidance concerning long-term
exclusive lease issues.  FAA will issue this guidance, on the DOT DBE
web site among other places, as soon as it is ready.

§ 23.69  77  Does this part preempt local requirements?

	This section restates the statutory provision that the regulation does
not automatically preempt all local requirements.  However, local laws,
regulations, and policies may not directly conflict with this
regulation, and sponsors airports would have to take steps to avoid
situations where a local requirement conflicts with a Federal
requirement.  It should be noted also that this provision refers to
substantive DBE and similar requirements of local entities, and it in no
way avoids the need to comply with not to Federal requirements for
confidentiality (e.g., with respect to information submitted in response
to PNW requirements).

	A car rental trade association asked the Department to prohibit
airports from having requirements involving such measures as bid
preferences, preferences for the allocation of space, or good faith
efforts pertaining to direct ownership arrangements.  Because of the
statutory provision concerning pre-emption, we do not have the legal
authority to impose such prohibitions.We have not adopted specific
prohibitions, but have instead specified what is required of airports.
Airports will be expected to comply with these Federal requirements and
not impose any conflicting requirements.

	The Department is concerned, however, that additional or more stringent
local or state requirements that go beyond the provisions of Part 23
could implicate the Federal ACDBE program in matters of questionable
constitutionality.  We are adding a provision directing airports to
attach copies of any provisions additional to those needed to carry out
Part 23 requirements to their ACDBE program submissions.  FAA will
review these provisions, and FAA will not approve an ACDBE program if
there are “go-beyond” provisions that are inconsistent with this
rule. In any case, even where FAA has reviewed a state or local
provision and determined that it does not conflict with Part 23, there
should be a clear firewall between the ACDBE program and such additional
state or local requirements.  There must be a separate program document
for them, and the Federal and state/local additional programs,
respectively, must be administered in a clearly distinct manner.

§23.71   79   Does this part permit recipients to use local geographic
preferences?

The 2000 SNPRM proposed that, in some cases, airports could use local
geographic preferences in selecting concessionaires if they obtained a
program waiver from the FAA.  On further reflection, the Department has
decided that the disadvantages of local preferences that we noted in the
SNPRM, such as the elimination of the benefits of wider competition for
business opportunities and the possible loss of opportunities for DBEs
who are not located in the locality served by an airport, are important
enough to warrant prohibiting local preferences altogether.  The ACDBE
program is a national program, and at least some concession markets are
national markets.  In this context, a local preference program is out of
place.  It is also out of character with a narrowly-tailored program, in
that it would limit selections of ACDBEs to something less than their
actual availability in the marketplace.  Among commenters, one airport
favored local preferences and a car rental trade association opposed
them; there was not widespread interest or support for retaining local
preferences, in any case.

§23.73  What compliance and enforcement provisions are used under this
part?

	This section recites that standard FAA/DOT enforcement procedures –
the same ones used for Part 26 – apply to Part 23.

REGULATORY ANALYSES AND NOTICES

	This rule is nonsignificant for purposes of Executive Order 12866 and
the Department of Transportation’s Regulatory Policies and Procedures.
 While the rule is of considerable interest to the airport community and
businesses that work on airports, it is essentially an update of a
long-standing, continuing program that does not break new policy ground
in most areas.  It does not impose significant new costs on airports or
businesses.  The rule does not have Federalism impacts sufficient to
warrant the preparation of a Federalism Assessment.

	The Department certifies that this rule will not have a significant
economic effect on a substantial number of small entities.  The rule
clearly affects small entities:  ACDBEs are, by definition, small
businesses.  However, the economic effect of the rule on these small
entities is not likely to be significant.  The modifications to small
business size standards should expand opportunities for ACDBEs to grow
and continue to participate in the program.Until the Department takes
action based on the accompanying SNPRM, there are no changes from the
current rule with respect to business size standards.   The personal net
worth standard may affect some existing ACDBE owners, but but these
effects are significantly mitigated by the inflationary adjustment to
the basic personal net worth standard and”grandfathering” of
existing contracts and, more importantly, by the exclusion of documented
needs to hold assets to support business growth.   In other respects,
compared to the existing rule, the new rule should notis not expected to
have noticeable incremental economic effects on small businesses.

	A number of provisions of this rule involve information collection
requirements subject to the Paperwork Reduction Act of 1995 (PRA).
With some modifications, these information collection requirements of
the rule continue existing Part 23 requirements, major elements of the
ACDBE program that airports and concessionaires have been implementing
at least 1992.  Overall, the Department believes the overall burden of
these requirements will remain the same or shrink.  These requirements
are the following:

• Firms applying for DBE certification must provide information
(including PNW data) to recipients/uniform certification programs (UCPs)
to allow them to make eligibility decisions.  Currently certified firms
must provide information to recipients/UCPs to allow them to review the
firms’ continuing eligibility.

• When firms bid on concession opportunities that have
concession-specific goals, they must document their ACDBE participation
and/or the good faith efforts they have made to meet the contract goals.

•  Recipients must calculate overall goals and transmit them to the

FAA for approval.   There are two sets of overall goals:  one for car
rentals and one for non-car rental concessions.  Many smaller airports
will not have to submit overall goals.

• Recipients must have a revised ACDBE program approved by the FAA.
This is a one-time requirement.

*  Recipients must retain ACDBE data for three years and submit an
annual report to the FAA.

The Department estimates that these program elements will result in a
total of approximately 41,000 annual burden hours to recipients and
contractors, plus an additional 44,000 burden hours in the first year
for the revision and submission of ACDBE programs.

	Both as the result of comments and what the Department learns as it
implements the ACDBE program under Part 23, it is possible for the
Department’s information needs and the way we meet them to change.
Sometimes the way we collect information can be changed informally
(e.g., by guidance telling recipients they need not repeat information
that does not change significantly from year to year).  In other
circumstances, a technical amendment to the regulation may be needed.
In any case, the Department will remain sensitive to situations in which
modifying information collection requirements becomes appropriate.

	As required by the PRA, the Department has submitted an information
collection approval request to OMB.  You should direct comments to the
Office of Information and Regulatory Affairs (OIRA), OMB, Room 10235,
New Executive Office Building, Washington, DC, 20503;  Attention: Desk
Officer for U.S. Department of Transportation.  Because mail service to
OIRA is very difficult because of security measures, it is preferable
for interested persons to fax comments to OMB.  The fax number for this
purpose is<PHONE_NUMBER>.  You may also transmit copies of your comments
to the Department’s docket for this rulemaking.

	The Department considers comments by the public on information
collections for several purposes:

• Evaluating the necessity of information collections for the proper
performance of the Department’s functions, including whether the
information has practical utility.

• Evaluating the accuracy of the Department’s estimate of the burden
of the information collections, including the validity of the methods
and assumptions used.

• Enhancing the quality, usefulness, and clarity of the information to
be collected.

• Minimizing the burden of the collection of information on
respondents, including through the use of electronic and other methods.

The Department points out that all the information collection elements
discussed in this section of the preamble have not only been part of the
Department’s ACDBE program for many years, but have also been the
subject of extensive public comment following the 1993, 1997, and 2000
proposed rules on this subject..   Among the many comments received in
response to these notices were

a number addressing administrative burden issues surrounding these
program elements.   In this final rule, the Department has responded to
these comments.

	OMB is required to make a decision concerning information collections
within 30-60 days of the publication of this notice.  Therefore, for
best effect, comments should be received by DOT/OMB within 30 days of
publication.   Following receipt of OMB approval, the Department will
publish a Federal Register notice containing the applicable OMB approval
numbers.

	There are a number of other statutes and Executive Orders that apply to
the rulemaking process that the Department considers in all rulemakings.
 However, none of them are relevant to this rule.  These include the
Unfunded Mandates Reform Act (which does not apply to
nondiscrimination/civil rights requirements), the National Environmental
Policy Act, E.O. 12630 (concerning property rights), E.O. 12988
(concerning civil justice reform), and E.O. 13045 (protection of
children from environmental risks).

ISSUED THIS      THIS 8th DAY OF           MARCH 2004 2005 AT
WASHINGTON, D.C.

							(signed)

						_________________________________

						Norman Y. Mineta

						Secretary of Transportation

For the reasons stated in the preamble, the Department proposes to takes
the following actions:

1.  The authority for part 23Part 23, Title 49, Code of Federal
Regulations, is revised to read as follows:

	Authority:  49 U.S.C. 47107; 42 U.S.C. 2000d; 49 U.S.C. 322; Executive
Order 12138.

 Revise part 23Part 23 to read as follows:

49 CFR PART 23 – PARTICIPATION OF DISADVANTAGED BUSINESS ENTERPRISE IN
AIRPORT CONCESSIONS

Sec.

Subpart A - General

23.1  What are the objectives of this part?

23.3  What  do the terms used in this part mean?

23.5  To whom does this part apply?

23.7  How long do the provisions of this part remain in effect?

23.7  9  What are the nondiscrimination and assurance requirements of
this subpart for recipients?

23.11  What compliance and enforcement provisions are used under this
part?

23.9  13  How does the Department issue guidance, interpretations,
exemptions, and waivers pertaining to this part?

Subpart B – ACDBE programs

23.21   Who must submit an ACDBE program to FAA, and when?

23.213  What administrative provisions must be in a recipient’s ACDBE
program?

23.215   What measures must recipients include in their ACDBE programs
to ensure nondiscriminatory participation of ACDBEs in concessions?

23.217  What information does a  recipient have to retain and report
about implementation of its ACDBE program?

23.219  What monitoring and compliance procedures must  recipients
follow?

Subpart C – Certification of ACDBEs

23.321   What certification standards and procedures do recipients use
to certify  ACDBEs?

23.323  What size standards do recipients use to determine the
eligibility of ACDBEs?

23.325  What is the personal net worth standard for disadvantaged owners
of ACDBEs?

23.327  Are firms certified under 49 CFR Part 26 eligible to participate
as ACDBEs?

23.329  What other certification requirements apply in the case of
ACDBEs?

Subpart D - Goals, Good Faith Efforts, and Counting

23.431  What is the basic overall goal requirement for recipients?

23.433  What are the public participationconsultation  requirements in
the development of recipients’ overall goals?

23.435  What are the requirements for submitting overall goal
information to the FAA?

23.437 What is the base for a recipient’ss’ goals for concessions
other than car rentals?

23.439   What is the base for a recipient’ss’ goals for car rentals?

23.541  How are a recipient’s overall goals expressed and calculated?

23.543  How do car rental companies count ACDBE participation toward
their goals?

23.545  How do recipients count ACDBE participation toward goals for
items other than car rentals?

23.547   What happens if a recipient falls short of meeting its overall
goals?

23.549 – What is the role of the statutory 10 percent goal in the
ACDBE program?

23.651  Can recipients use quotas or set-asides in as part of their
their ACDBE programs?

Subpart E -  Other Provisions

23.61  71  Does a recipient have to change existing concession
agreements?

23.63  73  What requirements apply to privately-owned or leased terminal
buildings?

23.65  75  Can recipients enter into long-term, exclusive agreements
with concessionaires?

23.69  77  Does this part preempt local requirements?

23.71   79   Does this part permit recipients to use local geographic
preferences?

23.73  What compliance and enforcement provisions are used under this
part?

Appendix A to part 23Part 23 – Uniform Report of  ACDBE Participation
Reporting Form

Subpart A - General

§23.1  What are the objectives of this part?

This part seeks to achieve several objectives:

	(a) To ensure nondiscrimination in the award and administration of
opportunities for concessions by airports receiving DOT financial
assistance;

	(b) To create a level playing field on which ACDBEs can compete fairly
for opportunities for concessions;

	(c) To ensure that there is diversity among participants in airports’
concession  programs;

	(dc) To ensure that the Department’s ACDBE program is narrowly
tailored in accordance with applicable law;

	(ed) To ensure that only firms that fully meet this part’s
eligibility standards are permitted to participate as ACDBEs;

	(fe) To help remove barriers to the participation of ACDBEs in
opportunities for concessions at airports receiving DOT financial
assistance; and

	(gf) To provide appropriate flexibility to airports receiving DOT
financial assistance in establishing and providing opportunities for
ACDBEs.

§23.3  What  do the terms used in this Part mean?

	“Administrator” means the Administrator of the Federal Aviation
Administration (FAA).

“Affiliation” has the same meaning the term has in the Small
Business Administration (SBA) regulations, 13 CFR part 121, except that
the provisions of SBA regulations concerning affiliation in the context
of joint ventures (13 CFR §121.103(f)) do not apply to this part.

.	(1)  Except as otherwise provided in 13 CFR part 121, concerns are
affiliates of each other when, either directly or indirectly:

	(i) One concern controls or has the power to control the other; or

	(ii) A third party or parties controls or has the power to control
both; or

	(iii) An identity of interest between or among parties exists such that
affiliation may be found.

	(2) In determining whether affiliation exists, it is necessary to
consider all appropriate factors, including common ownership, common
management, and contractual relationships.   Affiliates must be
considered together in determining whether a concern meets small
business size criteria and the statutory cap on the participation of
firms in the ACDBE program.

	“Airport Concession Disadvantaged Business Enterprise (ACDBE)”
means a concession that is a for-profit small business concern --

	(1) That is at least 51 percent owned by one or more individuals who
are both socially and economically disadvantaged or, in the case of a
corporation, in which 51 percent of the stock is owned by one or more
such individuals; and

	(2) Whose management and daily business operations are controlled by
one or more of the socially and economically disadvantaged individuals
who own it.

	“Alaska Native Corporation (ANC)” means any Regional Corporation,
Village Corporation, Urban Corporation, or Group Corporation organized
under the laws of the State of Alaska in accordance with the Alaska
Native Claims Settlement Act (43 U.S.C. 1601 et seq.)

	“Car dealership” means an establishment primarily engaged in the
retail sale of new and/or used automobiles.  Car dealerships frequently
maintain repair departments and carry stocks of replacement parts,
tires, batteries, and automotive accessories.  Such establishments also
frequently sell pickup trucks and vans at retail.  In the standard
industrial classification system, car dealerships are categorized in
NAICS code 441110.

"Concession" means one or more of the types of for-profit

businesses listed in paragraph (1) or (2) of this definition:

(1) A business, located on an airport subject to this part, that  is
engaged in the sale of consumer goods or services to the public under an
agreement with the recipient, another concessionaire, or the owner or
lessee of a terminal, if other than the recipient.

	(2) A business conducting one or more of the following covered
activities, even if it does not maintain an office, store, or other
business location on an airport subject to this part, as long as the
activities take place on the airport:  management contracts and
subcontracts, a web-based or other electronic business in a terminal or
which passengers can access at the terminal, an advertising business
that provides advertising displays or messages to the public in a
terminalon the airport, or a business that provides goods and services
to concessionaires.

	EXAMPLE TO PARAGRAPH (2):  A supplier of goods or a management
contractor maintains its office or primary place of business off the
airport.  However the supplier provides goods to a retail establishment
in the airport; or the management contractor operates the parking
facility on the airport.  These businesses are considered concessions
for purposes of this part.

	(3) For purposes of this subpart, a business is not considered to be
“located on the airport” solely because it picks up and/or delivers
customers under a permit, license, or other agreement.  For example,
providers of taxi, limousine, car rental, or hotel services are not
considered to be located on the airport just because they send shuttles
onto airport grounds to pick up passengers or drop them off.  A business
is considered to be “located on the airport,” however, if it has an
on-airport facility.  Such facilities include in the case of a taxi
operator, a dispatcher; in the case of a limousine, a booth selling
tickets to the public; in the case of a car rental company, a counter at
which its services are sold to the public or a ready return facility;
and in the case of a hotel operator, a hotel located anywhere on airport
property.

	(4) Any business meeting the definition of concession is covered by
this subpart, regardless of the name given to the agreement with the
recipient, concessionaire, or airport terminal owner or lessee.  A
concession may be operated under various types of agreements, including
but not limited to the following:

	(i)  Leases.

	(ii)  Subleases.

	(iii)  Permits.

	(iv)  Contracts or subcontracts.

	(v) Other instruments or arrangements.

	(5) The conduct of an aeronautical activity is not considered a
concession for purposes of this subpart.  Aeronautical activities
include scheduled and non-scheduled air carriers, air taxis, air
charters, and air couriers, in their normal passenger or freight
carrying capacities; fixed base operators; flight schools; recreational
service providers (e.g., sky-diving, parachute-jumping, flying guides);
and air tour services.

	(6) Other examples of entities that do not meet the definition of a
concession include flight kitchens and in-flight caterers servicing air
carriers, government agencies, industrial plants, farm leases,
individuals leasing hangar space, custodial and security contracts,
telephone and electric service to the airport facility, holding
companies, and skycap services under contract with an air carrier or
airport.

	"Concessionaire" means a firm that owns and controls a concession or a
portion of a concession.

	“Department (DOT)” means the U.S. Department of Transportation,
including the Office of the Secretary and the Federal Aviation
Administration (FAA).

	"Direct ownership arrangement" means a joint venture, partnership,
sublease, licensee, franchise, or other arrangement in which a firm owns
and controls a concession.

	“Good faith efforts” means efforts to achieve an ACDBE goal or
other requirement of this part that, by their scope, intensity, and
appropriateness to the objective, can reasonably be expected to meet the
program requirement.

	“Immediate family member” means father, mother, husband, wife, son,
daughter, brother, sister, grandmother, grandfather, grandson,
granddaughter, mother-in-law, father-in-law, brother-in-law,
sister-in-law, or registered domestic partner.

	“Indian tribe” means any Indian tribe, band, nation, or other

organized group or community of Indians, including any ANC, which is
recognized as eligible for the special programs and services provided by
the United States to Indians because of their status as Indians, or is
recognized as such by the State in which the tribe, band, nation, group,
or community resides.   See definition of ``tribally-owned concern'' in
this section.

	“Joint venture” means an association of an ACDBE firm and one or
more other firms to carry out a single, for-profit business enterprise,
for which the parties combine their property, capital, efforts, skills
and knowledge, and in which the ACDBE is responsible for a distinct,
clearly defined portion of the work of the contract and whose shares in
the capital contribution, control, management, risks, and profits of the
joint venture are commensurate with its ownership interest.  Joint
venture entities are not certified as ACDBEs.

	“Large hub primary airport” means a commercial service airport that
has a number of passenger boardings equal to at least one percent of all
passenger boardings in the United States.

	"Management contract or subcontract" means an agreement with a
recipient or another management contractor under which a firm directs or
operates one or more business activities, the assets of which are owned,
leased, or otherwise controlled by the recipient.  The managing agent
generally receives, as compensation, a flat fee or a percentage of the
gross receipts or profit from the business activity.  For purposes of
this subpart, the business activity operated or directed by the managing
agent must be other than an aeronautical activity, be located at an
airport subject to this subpart, and be engaged in the sale of consumer
goods or provision of services to the public.

	"Material amendment" means a significant change to the basic rights or
obligations of the parties to a concession agreement.  Examples of
material amendments include an extension to the term not provided for in
the original agreement or a substantial increase in the scope of the
concession privilege.  Examples of nonmaterial amendments include a
change in the name of the concessionaire or a change to the payment due
dates.

	“Medium hub primary airport” means a commercial service airport
that has a number of passenger boardings equal to at least 0.25 percent
of all passenger boardings in the United States but less than one
percent of such passenger boardings.

	“Native Hawaiian” means any individual whose ancestors were
natives, prior to 1778, of the area that now comprises the State of
Hawaii.

            “Native Hawaiian Organization” means any community
service organization serving Native Hawaiians in the State of Hawaii
that is a not-for-profit organization chartered by the State of Hawaii,
and is controlled by Native Hawaiians

	“Noncompliance” means that a recipient has not correctly
implemented the requirements of this part.

	“Nonhub primary airport” means a commercial service airport that
has more than 10,000 passenger boardings each year but less than 0.05
percent of all passenger boardings in the United States.

	“Part 26” means 49 CFR Part 26, the Department of
Transportation’s disadvantaged business enterprise regulation for
DOT-assisted contracts.

	“Personal net worth” means the net value of the assets of an
individual remaining after total liabilities are deducted.  An
individual’s personal net worth does not include the following:  (1)
the value of the individual’s ownership ownership interest in an ACDBE
firm or a firm that is applying for ACDBE certification; (2)  the
individual’s equity in his or her primary place of residence; and (3)
other assets that the individual can document are necessary to obtain
financing or a franchise agreement for the initiation or expansion of
his or her ACDBE firm (or have in fact been encumbered to support
existing financing for the individual’s ACDBE business), to a maximum
of $5 3 million.  An individual’s personal net worth includes only his
or her own share of assets held jointly or as community property with
the individual’s spouse.

"Primary airport" means a commercial service airport that the Secretary
determines to have more than 10,000 passengers enplaned annually.

	“Primary industry classification” means the North American
Industrial Classification System (NAICS) code designation that best
describes the primary business of a firm..  The NAICS Manual is
available through the National Technical Information Service (NTIS) of
the U. S. Department of Commerce (Springfield, VA, 22261).  NTIS also
makes materials available through its web site (www.ntis.gov/naics).

	“Primary recipient” means a recipient to which DOT financial
assistance is extended through the programs of the FAA and which passes
some or all of it on to another recipient.

	“Principal place of business” means the business location where the
individuals who manage the firm’s day-to-day operations spend most
working hours and where top management’s business records are kept.
If the offices from which management is directed and where business
records are kept are in different locations, the recipient will
determine the principal place of business for ACDBE program purposes.

	 	”Race-conscious” means a measure or program that is focused
specifically on assisting only ACDBEs, including women-owned ACDBEs.
For the purposes of this part, race-conscious measures include
gender-conscious measures.

	 “Race-neutral” means a measure or program that is, or can be, used
to assist all small businesses, without making distinctions or
classifications on the basis of race or gender.

	“Secretary” means the Secretary of Transportation or his/her
designee.

	“Set-aside” means a contracting practice restricting eligibility
for the competitive award of a contract solely to ACDBE firms.

	“Small Business Administration” or “SBA” means the United
States Small Business Administration.

"Small business concern" means a for-profit business that does not
exceed the size standards of §23.23 of this part.  A concessionaire
qualifying under this definition that exceeds the size standard after
entering a concession agreement, but which otherwise remains eligible,
may continue to be counted as ACDBE participation toward the overall
goals and any concesion-specific goals set under this subpart, until the
current agreement, including the exercise of options, expires.

	“Small hub airport” means a publicly owned commercial service
airport that has a number of passenger boardings equal to at least 0.05
percent of all passenger boardings in the United States but less than
0.25 percent of such passenger boardings.

	   " Socially and economically disadvantaged individual” means any
individual who is a citizen (or lawfully admitted permanent resident) of
the United States and who is --

		(1) Any individual determined by a recipient to be a socially and
economically disadvantaged individual on a case-by-case basis.

	(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 American
Indians, Eskimos, Aleuts, 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), the Commonwealth of the Northern Marianas Islands,
Macao, Fiji, Tonga, Kirbati, Juvalu, 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.

	"Recipient” means any entity, public or private, to which DOT
financial assistance is extended, whether directly or through another
recipient, through the programs of the FAA.

	“Tribally-owned concern” means any concern at least 51 percent
owned by an Indian tribe as defined in this section.

	“You” refers to a recipient, unless a statement in the text of this
part or the context requires otherwise (i.e., 'You must do XYZ' means
that recipients must do XYZ).

§ 23.5  To whom does this part apply?

	If you are a recipient that has received a grant for airport
development at any time after January 1988 that was authorized under
Title 49 of the United States Code, this part applies to you.

§23.7  How long do the provisions of this part remain in effect?

	Unless extended by the Department, the provisions of this rule will
terminate and become inoperative on [insert date five years from
effective date of this part].

§ 23.7  9  What are the nondiscrimination and assurance requirements of
this part for recipients?

	(a) As a recipient, you must meet the non-discrimination requirements
provided in Part 26, §26.7 with respect to the award and performance of
any concession agreement, management contract or subcontract, purchase
or lease agreement, or other agreement covered by this subpart.

	(b) You must also take all necessary and reasonable steps to ensure
nondiscrimination in the award and administration of contracts and
agreements covered by this part.

	(c) You must include the following assurances in all concession
agreements and management contracts you execute with any firm after
[insert effective date of this part]:

	(1)  "This agreement is subject to the requirements of the U.S.
Department of Transportation's regulations, 49 CFR part 23Part 23. The
concessionaire or contractor agrees that it will not discriminate
against any business owner because of the owner's race, color, national
origin, or sex in connection with the award or performance of any
concession agreement, management contract, or subcontract, purchase or
lease agreement, or other agreement covered by 49 CFR part 23Part 23.

	(2)  "The concessionaire or contractor agrees to include the above
statements in any subsequent concession agreement or contract covered by
49 CFR part 23Part 23, that it enters and cause those businesses to
similarly include the statements in further agreements."

§23.11  What compliance and enforcement provisions are used under this
part?

	The compliance and enforcement provisions of Part 26 (§§26.101 and
26.105 – 26.107) apply to this part in the same way that they apply to
FAA recipients and programs under Part 26.

§ 23.9  13  How does the Department issue guidance, interpretations,
exemptions, and waivers pertaining to this part?

	(a) Only guidance and interpretations (including interpretations set
forth in certification appeal decisions) consistent with this part
23Part 23 and issued after [insert date effective date of this rule]
have definitive, binding effect in implementing the provisions of this
part and constitute the official position of the Department of
Transportation.

	(b) The Secretary of Transportation, Office of the Secretary of
Transportation, and FAA may issue written interpretations of or written
guidance concerning this part.   Written interpretations and guidance
are valid and binding, and constitute the official position of the
Department of Transportation, only if they are issued over the signature
of the Secretary of Transportation or if they contain the following
statement:

The General Counsel of the Department of Transportation has reviewed
this document and approved it as consistent with the language and intent
of 49 CFR part 23Part 23.

	(c) You may  apply for an exemption from any provision of this part.
To apply, you must request the exemption in writing from the Office of
the Secretary of Transportation or the FAA.  The Secretary will grant
the request only if it documents special or exceptional circumstances,
not likely to be generally applicable, and not contemplated in
connection with the rulemaking that established this part, that make
your compliance with a specific provision of this part impractical.  You
must agree to take any steps that the Department specifies to comply
with the intent of the provision from which an exemption is granted.
The Secretary will issue a written response to all exemption requests.