[Federal Register Volume 87, Number 139 (Thursday, July 21, 2022)]
[Proposed Rules]
[Pages 43620-43685]
[FR Doc No: 2022-14586]

Vol. 87

Thursday,

No. 139

July 21, 2022

Part II

Department of Transportation

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Office of the Secretary

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49 CFR Parts 23 and 26

Disadvantaged Business Enterprise and Airport Concession Disadvantaged
Business Enterprise Program Implementation Modifications; Proposed Rule

Federal Register / Vol. 87 , No. 139 / Thursday, July 21, 2022 /
Proposed Rules

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Parts 23 and 26

[Docket No. DOT-OST-2022-0051]
RIN 2105-AE98

Disadvantaged Business Enterprise and Airport Concession
Disadvantaged Business Enterprise Program Implementation Modifications

AGENCY: Office of the Secretary (OST), U.S. Department of
Transportation (DOT or the Department).

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: This rulemaking would strengthen implementation of the
Department of Transportation's (Department or DOT) Disadvantaged
Business Enterprise (DBE) and Airport Concession Disadvantaged Business
Enterprise (ACDBE) Program regulations. The NPRM would update personal
net worth and program size thresholds for inflation; modernizes rules
for counting of material suppliers; incorporate procedural
flexibilities enacted during the coronavirus (COVID-19) pandemic; add
new program elements to foster greater usage of DBEs and ACDBEs with
concurrent, proactive monitoring and oversight; update certification
provisions with less prescriptive rules that give certifiers
flexibility when determining eligibility; and make technical
corrections that have led to substantive misinterpretations of the
rules by recipients, program applicants, and participants.

DATES: Comments should be filed by September 19, 2022. Late-filed
comments will be considered to the extent practicable.

ADDRESSES: You may submit comments (identified by the agency name and
DOT Docket ID Number DOT-OST-2022-0051) by any of the following
methods:
     Federal eRulemaking Portal: Go to https://www.regulations.gov and follow the online instructions for submitting
comments.
     Mail: Docket Management Facility: U.S. Department of
Transportation, 1200 New Jersey Ave. SE, West Building Ground Floor,
Room W12-140, Washington, DC 20590-0001.
     Hand Delivery or Courier: U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Ave. SE, Washington, DC 20590-0001 between 9 a.m. and 5 p.m.
EST, Monday through Friday, except Federal holidays.
     Fax:<PHONE_NUMBER>.
    Instructions: You must include the agency name and docket number
DOT-OST-2022-0051 or the Regulatory Identification Number (RIN) 2105-
AE98 for the rulemaking at the beginning of your comment. All comments
received will be posted without change to https://www.regulations.gov,
including any personal information provided.
    Privacy Act: Anyone is able to search the electronic form of all
comments received in any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review DOT's
Privacy Act statement in the Federal Register published on April 11,
2000 (65 FR 19477-78).
    Paperwork Reduction Act: Pursuant to 44 U.S.C 3506(c)(2)(B), DOT
solicits comments about the accuracy of the hours and cost burden
estimates. Comments should be submitted to Walter Bohorfoush,
Supervisory Information Technology Specialist, Office of the Chief
Information Officer, U.S. Department of Transportation, at<PHONE_NUMBER>/[email protected] or Joseph Nye, Office of the Secretary
Desk Officer, Office of Management and Budget, at
[email protected]. The Office of Management and Budget (OMB) is
required to make a decision concerning the collection of information
requirements contained in this proposed rule between 30 and 60 days
after publication of this document in the Federal Register. Therefore,
a comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication. The final rule will respond
to any OMB or public comments on the information collection
requirements contained in this proposal.
    Docket: For internet access to the docket to read background
documents and comments received, go to https://www.regulations.gov.
Background documents and comments received may also be viewed at the
U.S. Department of Transportation, 1200 New Jersey Ave. SE, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, Washington,
DC 20590-0001, between 9 a.m. and 5 p.m. EST, Monday through Friday,
except Federal holidays.
    Electronic Access and Filing: A copy of the Notice of Proposed
Rulemaking, all comments, final rule and all background material may be
viewed online at https://www.regulations.gov using the docket number
listed above. A copy of this notice will be placed in the docket.
Electronic retrieval help and guidelines are available on the website.
An electronic copy of this document may be downloaded from the Office
of the Federal Register's website at: https://www.FederalRegister.gov
and the Government Publishing Office's website at: https://www.GovInfo.gov.

FOR FURTHER INFORMATION CONTACT: Questions concerning part 26
amendments should be directed to Marc D. Pentino, Associate Director,
Disadvantaged Business Enterprise Programs Division, Departmental
Office of Civil Rights, Office of the Secretary, U.S. Department of
Transportation, at<PHONE_NUMBER>/[email protected]. Questions
concerning part 23 amendments should be directed to Marcus England,
Office of Civil Rights, National Airport Civil Rights Policy and
Compliance (ACR-4C), Federal Aviation Administration, 600 Independence
Ave. SW, Washington, DC 20591 at<PHONE_NUMBER>/[email protected] or
Nicholas Giles, Office of Civil Rights, National Airport Civil Rights
Policy and Compliance (ACR-4C), Federal Aviation Administration, 600
Independence Ave. SW, Washington, DC 20591, at<PHONE_NUMBER>/[email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

Introduction

49 CFR Part 26

Subpart A--General
    Bipartisan Infratructure Law (BIL) and Fixing America's Surface
Transportation (FAST) Act (Sec.  26.3)
    Definitions (Sec.  26.5)
    Disadvantaged Business Enterprise
    Personal Net Worth
    Principal Place of Business
    Transit Vehicle
    Transit Vehicle Dealership
    Transit Vehicle Manufacturer (TVM)
    Unsworn Declaration
    Reporting Requirements (Sec.  26.11 and Appendix B)
    Uniform Report of DBE Awards or Commitments and Payments
(Uniform Report)
    Bidders lists
    Moving Ahead for Progress in the 21st Century (MAP-21) data
reports
Subpart B--Administrative Requirements for DBE Programs for
Federally Assisted Contracting
    Threshold Program Requirement for FTA Recipients (Sec.  26.21)
    Unified Certification Program (UCP) DBE/ACDBE Directories
(Sec. Sec.  26.31 and 26.81(g))
    Monitoring Requirements (Sec.  26.37)
Subpart C--Goals, Good Faith Efforts, and Counting
    Prompt Payment and Retainage (Sec.  26.29)
    Transit Vehicle Manufacturers (TVMs) (Sec.  26.49)
    Section Heading
    Terminology and Abbreviations
    Post-Award Reporting Requirements
    Awards to Transit Vehicle Dealerships

    TVM Goal Setting, Submission, and Review
    TVM Uniform Reports
    Good Faith Efforts Procedures for Contracts with DBE Goals
(Sec.  26.53)
    DBE Performance Plan (DPP)
    Terminations
    DBE Supplier Credit (Sec.  26.55(e))
    Limiting DBE Supplier Goal Credit
    Evaluating a Supplier's Designation as a Regular Dealer
    Drop-Shipping and Delivery From Other Sources
    Negotiating the Price of Supplies
    DBE manufacturers
    Suppliers of Specialty Items
Subpart D--Certification Standards
    General Certification Rules (Sec.  26.63)
    Business Size (Sec. Sec.  26.65, 23.33)
    Changing the Measurement for NAICS Code Size Calculations From 3
to 5 Years
    Statutory Gross Receipts Cap
    Future Amendments and Technical Amendments
    Gross Receipts of ACDBE Affiliates and Joint Venture Partners
    Personal Net Worth (PNW) Adjustment
    Rationale for $1.60 Million Adjustment
    Periodic Adjustments to the PNW Cap
    Presumption of Social and Economic Disadvantage (SED)
(Sec. Sec.  26.5, 26.63, and 26.67 and Appendix E)
    Evidence and Rebuttal of Social Disadvantage
    Evidence and Rebuttal of Economic Disadvantage
    Individualized Determinations of Social and Economic
Disadvantage
    Ownership (Sec.  26.69)
    Burden Reduction, simplification, and Consistency
    Reasonable Economic Sense
    Control (Sec.  26.71)
    Socially and Economically Disadvantaged Owner (SEDO) Decisions
    Governance
    Expertise
    SEDO Decisions
    Delegation
    Independent Business
    Franchises
    NAICS codes
Subpart E--Certification Procedures
    Technical Corrections to UCP Requirements (Sec.  26.81)
    Virtual On-site Visits (Sec.  26.83(c)(1) and (h)(1))
    Timely Processing of In-State Certification Applications (Sec.
26.83(k))
    Curative Measures (Sec.  26.83(m))
    Interstate Certification (Sec.  26.85)
    Issues With the Current Rule
    Post-Interstate Certification Procedures
    Denials of In-State Certification Applications (Sec.  26.86)
    Decertification Procedures (Sec.  26.87)
    Strict Compliance
    Failure to Submit Declaration of Eligibility (DOE)
    Decertification Grounds
    Virtual Informal Hearings
    Informal Hearing Participation
    Counting DBE Participation After Decertification (Sec.
26.87(j))
    Summary Suspension (Sec.  26.88)
    Appeals to DOCR (Sec.  26.89)
    Updates to Appendices F and G

49 CFR Part 23

Subpart A--General
    Aligning Part 23 With Part 26 Objectives (Sec.  23.1)
    Definitions (Sec.  23.3)
    Affiliation
    Airport Concession Disadvantaged Business Enterprise (ACDBE)
    Concession
    Personal Net Worth
    Socially and Economically Disadvantaged Individual
    Sublease
Subpart B--ACDBE Program
    Direct Ownership, Goal setting, and Good Faith Efforts
Requirements (Sec.  23.25)
    Fostering ACDBE Small Business Participation (Sec.  23.26)
    Retaining and Reporting Information About ACDBE Program
Implementation (Sec.  23.27)
Subpart C--Certification and Eligibility of ACDBEs
    Size Standards (Sec.  23.33)
    Certifying Firms That Do Not Perform Work Relevant to an
Airport's Concessions (Sec.  23.39)
Subpart D--Goals, Good Faith Efforts, and Counting
    Removing Consultation Requirement When No New Concession
Opportunities Exist (Sec.  23.43)
    Non-car Rental Concession Goal Base (Sec.  23.47)
    Counting ACDBE Participation After Decertification (Sec.  23.55)
    Shortfall Analysis Submission Date (Sec.  23.57)
Subpart E--Other Provisions
    Long-tErm Exclusive Agreements (Sec.  23.75)
    Five-Year Term for Long-Term Agreements
    Long-Term Agreements and Options
    Long-Term Agreements and Holdovers
    Definition of Exclusive Agreement
    Local Geographic Preferences (Sec.  23.79)
    Appendix A to Part 23: Uniform Report of ACDBE Participation
    Technical Corrections
    Obsolete Dates in Sec.  23.31
    2019 Uniform Certification Application (UCA) Inconsistency
    Enhanced Consistency With Part 26

Introduction

    Spanning nearly 40 years, the DBE and ACDBE Programs are small
business initiatives intended to prevent discrimination, and remedy the
effects of past discrimination, in federally assisted contracting
markets. This proposed rulemaking advances the administration's goals
of advancing equity and expanding opportunities in government programs.
We invite comment from Federal Aviation Administration (FAA), Federal
Highway Administration (FHWA), and Federal Transit Administration (FTA)
funding recipients and project sponsors, firms participating or seeking
to participate in federally assisted contracts and/or in airport
concessions, the prime contracting community at large, and the general
public about our proposed changes to the DBE and ACDBE Program
regulations at 49 CFR parts 26 and 23, respectively.
    The Department revised the ACDBE Program regulation in 49 CFR part
23 (part 23) in 2005 to make it parallel, in many important respects,
to the DBE regulation in 49 CFR part 26 (part 26). DOT later modified
part 23 in June 2012, amending the small business size standards and
personal net worth limit for ACDBE Program participants. In October
2014, the Department published a final rule for part 26, revising the
Uniform Certification Application (UCA) and the Uniform Report of DBE
Awards or Commitments and Payments (Uniform Report), and adding the
Personal Net Worth (PNW) Statement. The rule also strengthened the
certification-related provisions, amended provisions addressing good
faith efforts, overall goal setting, transit vehicle manufacturers, and
counting for trucking companies.
    Since 2014, FAA, FHWA, FTA, and the Departmental Office of Civil
Rights (DOCR) have held outreach and listening sessions and conducted
trainings on a range of critical program topics including
certification, counting, goal setting, good faith efforts, joint
ventures, long-term exclusive (LTE) agreements at airports, PNW, gross
receipts calculation adjustments, and participatory reporting. In
Fiscal Year 2019, for example, FAA conducted six listening sessions,
each focusing on issues identified within the specific subparts of part
23 with input from airport sponsors, ACDBEs, certifying agencies,
consultants, and industry groups. In that same fiscal year, FHWA held
stakeholder listening sessions about supply transactions and counting
mechanisms for DBEs considered brokers, manufacturers, and regular
dealers.
    The Department also conducted internal research and analysis of
issues raised by stakeholders before and during the COVID-19 pandemic,
including those presented by the Transportation Research Board, the
Airport Cooperative Research Program, prime contractor associations,
and small businesses submitting certification appeals to DOCR. The
Department found that many portions of the current rules seem outdated
for today's DBE and ACDBE marketplace. They might inhibit firm growth
and success, and limit recipient and sponsors' ability to effectively
monitor program compliance by all participants in a pandemic and post-
pandemic environment. The Department seeks to update several core

provisions of the regulation to maintain optimal program performance,
improve operational cohesiveness, and provide contemporary solutions
for program deficiencies.
    The DBE Program was reauthorized in the Bipartisan Infrastructure
Law (BIL) (enacted as the Infrastructure Investment and Jobs Act (Nov.
15, 2021) (Pub. L. 117-58)). The ACDBE Program is authorized and
mandated by 49 U.S.C. 47107(e), 42 U.S.C. 2000d, 49 U.S.C. 322, and
Executive Order 12138.

Part 26

Subpart A--General

1. Bipartisan Infrastructure Law (BIL) and Fixing America's Surface
Transportation Act (FAST Act) (Sec.  26.3)

    The Department is amending Sec.  26.3 to add applicable Titles in
the reference to the Department's surface authorizations, the BIL
enacted on November 15, 2021, and the Fixing America's Surface
Transportation Act (FAST Act), enacted on December 4, 2015.

2. Definitions (Sec.  26.5)

    We propose minor technical and spelling corrections for the
following terms: ``Alaska Native, ``Department or DOT,'' ``Indian tribe
or Native American tribe,'' ``primary industry classification,''
``recipient,'' and ``Secretary.'' We also propose expanding current
definitions and adding new definitions, as described below.

Disadvantaged Business Enterprise

    We would like to clarify the term ``Disadvantaged Business
Enterprise'' to align it with the definition in the Department's
official guidance regarding the types of firms that should apply for
DBE and/or ACDBE certification.\1\ The guidance provides that
certification in the DBE Program be limited to business concerns
engaged in transportation-related industries. We propose adding that
language to the definition of Disadvantaged Business Enterprises.
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    \1\ See ``USDOT Official Guidance--DBE and ACDBE Certification
for Non-Transportation Industry Businesses'' at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/dbe-and-acdbe-certification-non-transportation.
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Personal Net Worth

    The Department seeks to modify the definition of ``personal net
worth'' for simplicity and to include a reference to the applicable
provision (i.e., proposed Sec.  26.68).

Principal Place of Business

    We would like to clarify the definition of ``principal place of
business'' to explain that it does not include construction trailers or
other temporary construction sites. This clarification would mirror the
Small Business Administration's (SBA) definition of ``bona fide place
of business'' in 13 CFR 124.3.

Transit Vehicle

    The Department recognizes that the term ``transit vehicle'' is used
throughout part 26 yet is not defined; some recipients and TVMs have
expressed confusion over whether ``transit vehicle'' refers to only
those vehicles produced by a TVM. The Department believes that defining
this term in the regulation is important because whether a vehicle
qualifies as a ``transit vehicle'' under part 26 has a significant
impact on a recipient's goal setting and reporting efforts. For
example, pursuant to Sec.  26.45(a)(2), ``transit vehicle purchases''
are to be excluded from a recipient's goal calculation. Some recipients
have incorrectly interpreted ``transit vehicle'' to mean ``vehicles
used by the recipient for transit purposes,'' and therefore have
excluded from their goal vehicles such as minivans manufactured by
major automakers to be used for micro-transit pilots. In practice,
funds used to purchase such vehicles must be included in the
recipient's goal calculations because such manufacturers do not qualify
as TVMs and therefore do not have their own DBE programs. The
Department proposes to alleviate this confusion by adding the following
definition of ``transit vehicle'' to Sec.  26.5: a vehicle manufactured
by a TVM. Additionally, the Department proposes to make explicit that a
vehicle manufactured by a non-TVM is not considered a transit vehicle
for purposes of part 26, notwithstanding the vehicle's ultimate use.
Thus, when a recipient procures vehicles that are not manufactured by a
TVM, the FTA funds used in that procurement must be included in either
the recipient's overall triennial goal or in a project goal established
pursuant to Sec.  26.45(e)(3) and must not be treated as if the funds
were awarded to a TVM. Relatedly, any FTA funds used to procure
vehicles that are not manufactured by a TVM must be reported in the
recipient's Uniform Report pursuant to Sec.  26.11(a).

Transit Vehicle Dealership

    The Department proposes to add a definition of ``transit vehicle
dealership'' to Sec.  26.5. This change, in combination with the
proposed edits to Sec.  26.49, will clarify the Department's existing
practice regarding transit vehicle dealerships. The Department proposes
to define ``transit vehicle dealership'' as follows: a business that is
primarily engaged in selling transit vehicles but that does not
manufacture vehicles itself. This addition would facilitate more
accurate tracking of FTA funds and DBE participation, thus better
serving the program.

Transit Vehicle Manufacturer (TVM)

    The Department first added a definition of TVM to Sec.  26.5 on
October 2, 2014 (79 FR 59592). Through experience, we have seen that
the current definition creates confusion for manufacturers of both
public and private mass transportation vehicles. The Department's
practice is to require all manufacturers of vehicles intended for
public mass transportation to become certified TVMs to bid on FTA-
funded contracts for such vehicles, even if they also manufacture
vehicles for both public and private transportation and industrial
vehicles. However, under the current definition such a manufacturer may
question whether its ``primary business purpose is to manufacture
vehicles specifically built for public mass transportation,''
especially if the combined sales to private operators and from
commercial vehicles exceed the sales of vehicles sold to public transit
operators. The Department has found that the current definition of TVM
is ambiguous and does not clearly convey which entities qualify as
TVMs. Thus, we are proposing several changes to the TVM definition. We
wish to remove ``specifically'' and ``public'' from the definition.
This would clarify that such manufacturers are considered TVMs and are
therefore subject to all applicable DBE regulation requirements.
    Further, the Department has found that the TVM definition creates
ambiguity as to which entities are subject to part 26 when a vehicle
receives post-production alterations or is retrofitted for public
transportation purposes (e.g., so-called ``cutaway'' vehicles, vans
customized for service to people with disabilities). In practice, the
Department has noted that the current definition, which includes
``producers of vehicles that receive post-production alterations or
retrofitting to be used for public transportation purposes,'' has
caused some recipients and TVMs to mistakenly believe that any
manufacturer of any motor vehicle could become a TVM based on the
actions of a third-party modifier. However, as the Department stated in
its response to comments on the 2014 final rule, we intended to include
only those businesses that perform the alterations

or retrofitting to vehicles for public transportation purposes.
Accordingly, the Department proposes to address this confusion by
clarifying that the businesses that perform retrofitting or post-
production alterations to vehicles so that such vehicles may be used
for public transportation purposes are considered TVMs.
    Further, the current TVM definition states that ``businesses that
manufacture, mass-produce, or distribute vehicles solely for personal
use and for sale ``off the lot'' are not considered transit vehicle
manufacturers.'' With this language, the Department intended to exclude
from the TVM definition entities that mass produce vehicles that are
not specifically intended to carry a large number of passengers, which
generally lack significant opportunities for recipient-requested
specifications at the manufacturing stage. The Department recognizes
that some recipients do use such vehicles for transit purposes. For
example, a transit agency may use a completely unmodified four-door
sedan to provide paratransit services for riders who do not require
specialized equipment. In practice, the Department has noted that it is
unclear whether any vehicle manufacturer makes vehicles ``solely'' for
personal use. Still, the Department intends to exclude vehicle
manufacturers that are primarily engaged in selling vehicles that are
ultimately designed to be used by individuals, notwithstanding their
actual use. Generally, public transportation does not currently
represent a major line of business for these manufacturers, and their
business structures and supply chains do not create the sort of
subcontracting opportunities that would allow for meaningful DBE
participation. The Department would like to exclude such manufacturers
and requests comments on whether such manufacturers should be treated
as TVMs when they intend to bid on FTA-assisted contracts, particularly
in light of new transit models and emerging vehicle technologies.
    Additionally, the Department has found that the ``off the lot''
condition is unnecessary and results in further confusion. The
Department initially included the ``off the lot'' language to highlight
that once a vehicle reaches the lot there are no longer meaningful
opportunities for DBEs to participate in the manufacturing process,
therefore obviating the rationale for requiring a TVM to operate a DBE
Program. However, the language has caused some eligible TVMs to
question how they should treat vehicles that they manufacture and sell
to recipients from their own lots. The current definition creates some
confusion over whether a vehicle must be both for personal use and for
sale off the lot to meet the exception, or instead only needs to meet
one of those conditions.
    The Department proposes to address this ambiguity by replacing
``solely'' with ``primarily,'' removing the reference to ``off the
lot'' purchases and, as discussed below and in the discussion of the
proposed changes to Sec.  26.49, add a definition and specify the
requirements for transit vehicle dealerships. The Department expects
that these revisions would clarify to vehicle manufacturers primarily
engaged in producing personal use vehicles that they are generally not
subject to part 26 and would clarify to eligible TVMs that the point of
sale is irrelevant if it is the TVM that bids on the contract from the
recipient.

Unsworn Declaration

    Parts 26 and 23 contain several sections that require applicants
and DBEs to submit documentation by notarized statement, sworn
affidavit or unsworn declaration. See e.g., Sec. Sec.  23.31(c)(2),
23.39(b), 26.61(c), 26.67(a), 26.83(c)(3), (i)(3), and (j), and
26.85(c)(4). The Department recognized (and continues to recognize)
that the COVID-19 public health emergency made it difficult and unsafe
to have forms notarized in person. Thus, on April 30, 2020, we issued
temporary guidance to address this challenge.\2\ It was extended until
June 30, 2022, and permits alternative methods to meet the notary
requirements in parts 26 and 23 by:
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    \2\ See ``COVID-19 Public Health Emergency: Update and
Supplemental Guidance'' at https://www.transportation.gov/sites/dot.gov/files/2020-05/DOCR%20Guidance%20April%2030%2C%202020_0.pdf.
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    1. Allowing the use of online notary public services if the
recipient's state permits notarized digital signatures validated with
an electronic notary seal.
    2. Allowing the use of a subscribing witness if the recipient's
state permits such use permitting the document to be signed in the
presence of a witness; the witness, not the signer, then appears before
a notary if doing so does not compromise social distancing.
    3. Allowing the filing of unsworn declarations executed under
penalty of perjury rather than sworn affidavits, including affidavits
of no change.
    4. Allowing unsworn declarations as an interim measure and
requiring the applicant or certified firm to follow up with a sworn
version at a to-be determined later date.
    The Department is aware that the remote online notarization process
is working effectively, and states are increasingly permitting this
process in furtherance of the DBE requirements. The Department
understands that in response to the COVID-19 pandemic, some states
accelerated the implementation of laws permitting remote notarization
or temporarily waived certain provisions of law that would otherwise
impede the availability of remote notarization.
    Further, the Department believes the use of unsworn declarations
executed under penalty of perjury rather than sworn affidavits has been
viewed as a positive development. There are compelling reasons to
continue allowing declarations under circumstances in the regulation
where affidavits or verifications are normally required. The Department
underscores that the use of declarations in lieu of sworn affidavits
does not diminish the legal sanctions available. Section 26.107(e)
acknowledges that the Department may refer false statement claims under
18 U.S.C. 1001 to the U.S. Department of Justice for prosecution.
Additionally, misstatements in a declaration are punishable as perjury
under 18 U.S.C. 1621. Moreover, 28 U.S.C. 1746 recognizes that a matter
required or permitted to be supported, evidenced, or proved by the
sworn affidavit, may be supported by an unsworn declaration under
penalty of perjury, with like force and effect.
    The use of online notarization services and the use of declarations
in lieu of sworn affidavits has reduced burdens for small businesses
that do not have direct or immediate access to a notary public. The
Department, however, believes more benefits with even less burden can
be achieved by relying on declarations rather than sworn affidavits;
these benefits include convenience, time, and cost savings. Based on
the success of the temporary practices and the benefits to small
businesses, the Department is proposing to eliminate the requirement
for sworn affidavits and notarization and instead require the use of
unsworn declarations under penalty of perjury.

3. Reporting Requirements (Sec.  26.11 and Appendix B)

    The Department proposes three changes to reporting requirements:
(1) revise the Uniform Report to include additional data fields, (2)
direct recipients to obtain a standardized set of bidders list data and
enter it into a centralized database specified by DOT, and (3) expand
data collection requirements for Moving Ahead for

Progress in the 21st Century (MAP-21) data reports.
    The proposed revisions to reporting requirements are critical to
DOT's efforts to improve data-driven program evaluation and DBE Program
decision making going forward. The Department believes the proposed
revisions would remedy current reporting deficiencies. They would also
be a meaningful step toward a more data-driven and uniform approach to
making future program improvements. An expanded data collection would
allow DOT to look at data across several years to get a thorough
assessment of the impact of the DBE Program.

Uniform Report

    The Department collects much of its DBE utilization data from the
Uniform Report. Recipients annually submit it to the OA(s) that provide
funding to them. We propose to revise the Uniform Report to include
additional data that would assist the OAs and the Department with
evaluating whether the DBE Program is making progress toward meeting
its stated objectives in Sec.  26.1. The Department proposes to revise
the Uniform Report to include the following new data fields:
     Names of the DBEs with contracts that are included in the
Uniform Report.
     Zip code of the firm's principal place of business.
     Owner(s)' contact information.
     Work category/trade firm performed in that contract.
     North American Industry Classification System (NAICS) code
associated with the type of work performed.
     Dollar value of the contract.
     Federally assisted contract number.
     Ethnic group membership.
     DBEs decertified during the reporting period for excess
gross receipts beyond the relevant size standard or because the
disadvantaged owner exceeded the personal net worth cap.
     Number of DBEs listed at time of commitment that were
replaced during the life of the contract.
    The Department believes that access to this data would help inform
the Department about areas that may need to be addressed through future
policy decisions and regulation revisions. For example, the names of
DBEs and NAICS codes would allow the Department to identify the firms
working on federally assisted contracts to determine whether the DBE
Program is benefiting a large subsection of all DBEs and not only a
select few.
    Information on firms that have ``outgrown'' the DBE Program by
exceeding the business size or PNW limits, would allow the Department
to determine whether firms later reenter the program. This data would
help the Department to evaluate progress towards the DBE Program
objective: ``[t]o assist the development of firms that can compete
successfully in the marketplace outside the DBE Program.'' Sec.
26.1(g).
    The proposed data collection would make it possible for the
Department to compare information from 3 datasets: the new MAP-21
report (e.g., the total number of DBEs, delineated by NAICS code and
prequalification), bidders list (i.e., those DBEs that are actively
bidding on federally assisted contracts), and Uniform Report (i.e.,
those DBEs that are awarded contracts and subcontracts). The new
information would improve the Department's ability to evaluate program
trends and would help establish a national baseline for the status of
the DBE Program.
    The Department also proposes to revise the method that recipients
use to submit the Uniform Report. Section 26.11(a) instructs recipients
to transmit the Uniform Report form in appendix B for review by the
applicable OA. Recipients currently submit the information
electronically and no longer submit printed spreadsheets. For this
reason, the Department proposes to amend the rule, instructing
recipients to submit this information in a form acceptable to the
concerned OA. We also propose to remove the Uniform Report form from
appendix B. Official forms are not required to be reproduced in the
Code of Federal Regulations (CFR), and the Uniform Report is readily
available on the DOT website.\3\ Removing this form from the CFR is an
administrative action and would not impact the ability of the public to
comment on any amendments to the information collections contained in
these forms.
---------------------------------------------------------------------------

    \3\ See ``New DBE Uniform Report'' at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/new-dbe-uniform-report.
---------------------------------------------------------------------------

    The proposal would make a minor change to instruction 5, which
specifies the reporting period for FHWA and FTA recipients. The change
would clarify that FTA recipients that do not meet the new $670,000
threshold in Sec.  26.21, are required to report data to the OA that
covers the entire year.
    The proposal would also make a technical correction to line 18 of
the report to conform the form text with the Department's official
guidance on reporting payments on ongoing contracts and add an example
to explain the number of contracts reported in item 18(C) may differ
from the number reported in item 18(A).\4\
---------------------------------------------------------------------------

    \4\ See ``Guidance on Completing Ongoing Payments'' at https://www.transportation.gov/sites/dot.gov/files/2020-01/docr-20180425-001part26qa.pdf.
---------------------------------------------------------------------------

    Finally, the Department does not currently collect data on the
number of DBEs committed in response to a contract goal (prior to
contract award) that were terminated during the life of the contract by
the prime contractor. Nor do we collect information on the reasons for
those terminations. This data would assist the Department with
identifying any trends in the number of terminations and the most
common reasons for terminations. For example, many terminations may
occur in certain parts of the country, or many terminations may occur
due to overcommitments by DBEs. With this data available, the
Department can provide focused technical assistance and training to
reduce the number of DBEs terminated and provide supportive services to
DBEs to assist in appropriate bidding practices. The Department seeks
comment about how frequent and detailed the collection should be as
well as what would be the best and most efficient method to capture
data on terminations of committed DBEs.

Bidders Lists

    Section 26.11(c) instructs recipients to create and maintain a
bidders list with certain information about DBE and non-DBE contractors
and subcontractors who seek work on federally assisted contracts.
Section 26.11(c)(1) states that the purpose of the list is related to
determining availability for use in goal-setting. In the 1999 final
rule, the Department noted ``bidders lists appear to be a promising
method for accurately determining the availability of DBE and non-DBE
firms'' and that ``creating and maintaining a bidders list would give
recipients another valuable way to measure the relative availability of
ready, willing and able DBEs when setting their overall goals.'' (64 FR
5096, 5104 (Feb. 2, 1999)) The Department also noted in the 1999 final
rule that flexibility was important because of potential burdens
related to collecting data about ``subcontractors that were
unsuccessful in their attempts to obtain contracts.'' Id. At the time,
the Department did not seek to impose procedural requirements for
collecting the data, in the interest of reducing burdens. The
Department suggested several possible collection methods, including
disseminating surveys and aggregating data from multiple sources.

These suggestions were incorporated into Sec.  26.11(c)(3). It is not
currently known how many recipients engaged or continue to engage in
surveys and questionnaires to obtain bidders list information or how
many are using this information to set overall goals. In practice, when
setting overall goals many--if not most--recipients use DBE directories
and U.S. Census Bureau data, a method described in Sec.  26.45(c)(1) or
use data from a disparity study as described in Sec.  26.45(c)(3).
    Many recipients of DBE Programs specify that bidders list
information is collected from all bidders at the time of bid
submission, and many recipients rely on electronic systems for
capturing and storing this information. Currently, all bidders list
information is obtained and maintained locally by each recipient and is
not reported to the Department or the concerned OA. As a result, this
data is disaggregated among thousands of recipients in a wide variety
of formats and may contain a variety of different data points. In a
standardized and centralized format, this data could be of great value
to the Department in evaluating the extent to which the program is
achieving the objectives of Sec.  26.1(b) and (g). A centralized
database, searchable by recipients, could also improve the viability of
the bidders list method described in Sec.  26.45(c)(2) as a means for
recipients to identify DBE availability at Step 1 of the overall goal
setting process.
    The Department therefore proposes revising Sec.  26.11(c) to
require recipients to obtain and enter bidders list data into a
centralized database the Department would specify. The purpose of this
proposed change is twofold: first, the revision would build a data
source that would allow more accurate and more granular analysis of
firms actively seeking to participate in DOT-funded contracts in
relation to the DBE Program objectives of Sec.  26.1; secondly, a
searchable, centralized database with bidders list information that
includes an expanded dataset would aid recipients in evaluating DBE
availability for goal setting purposes. We invite comment on estimated
costs for developing and maintaining such a database (this is not a
request for proposals or offers, and the Department is not seeking or
accepting unsolicited proposals).
    The Department also proposes to amend Sec.  26.11(c)(2) to require
recipients to obtain and report the following additional data sets:
race and gender information for the firm's majority owner; and NAICS
code applicable to each scope of work the firm sought to perform in its
bid. This proposed revision would help ensure that the bidders list
information to be collected includes at least the same elements as
those being required in the proposed change to the Uniform Report. In
conjunction with the proposed changes to the MAP-21 Report in Sec.
26.11(e) and the Uniform Report, the proposed bidders list reporting
requirement would provide the Department with data showing how many and
what types of DBE firms are certified, how many DBEs are actively
bidding as prime or subcontractors, and which of them are actually
awarded contracts or subcontracts.
    To ensure uniformity of data collection for proper analysis, the
Department proposes a change to Sec.  26.11(c)(3) regarding the
collection of bidders list information to require a standard practice
of requesting the information with bids or initial proposals.
    The Department anticipates minimal impact to stakeholders from
these changes as recipients already collect most (if not all) of this
information when conducting good faith efforts to obtain DBE
participation on contracts with DBE goals. Additionally, contrary to
the situation in 1999, current internet and data capture technology
makes sending out surveys and questionnaires and aggregating that data
less burdensome.

MAP-21 Data Reports

    In 2014, the Department implemented a longstanding provision in the
Department's surface transportation program authorizations, adding a
new reporting requirement which we called the MAP-21 data report. Under
Sec.  26.11(e), state departments of transportation, on behalf of their
UCP members, submit UCP directory information yearly to the
Departmental Office of Civil Rights reporting the percentage and
location in the state of DBEs controlled by women; socially and
economically disadvantaged individuals (other than women); and
individuals who are women and are otherwise socially and economically
disadvantaged individuals. The Department usually sends a request for
this information each Fall with a January due date and we have
interpreted the ``location in the state'' to mean certified in a
recipient's home state or certified out-of-state.
    The MAP-21 report information is distinct from what is included in
the Uniform Report that recipients and sponsors annually submit to the
relevant OAs. It provides a yearly snapshot of the number and
percentage of DBEs in that state. However, the MAP-21 report is limited
in scope and utility largely because the Department is unable to break
out the number of firms certified, denied, or decertified by ethnicity.
This limitation prevents any comparison to section C of the Uniform
Report that could show volume of participation in relation to firm
ownership data contained in state directories.
    We are mindful that similar concerns were raised in a 2001
Government Accountability Office (GAO) report (``Disadvantaged Business
Enterprise: Critical Information is Needed to Understand Program
Impact,'' GAO-01-586, pp. 18-19 (Jun. 1, 2001)), which criticized
elements of the Department's data collection as not truly reflective of
the environment that exists for the small business community of DBEs
and DBE applicants. The GAO observed, for example, that a lack of key
information prevents anyone from gaining a clear understanding of the
firms that participate in the DBE Program and how these firms compare
with the rest of the transportation contracting community.
    In response to the GAO report and subsequent observations, the
Department instituted many changes to the Uniform Report, mandated
improvements to state directories, and instituted the current MAP-21
collection. The existing MAP-21 data collected shows the number of DBE
certifications steadily increasing (approximately 3.5 percent each
year). More can be done now, however, to inform our understanding of
the DBE Program's impact and depth of coverage.
    The Department believes the proposed revision remedies the current
report deficiencies and is a meaningful first step toward a data-driven
and uniform approach to future program improvements and coordination
among program actors. The proposed revision does not replace existing
data collection requirements under the BIL but expands the collection
of data to cover the number of firms denied certification, summarily
suspended, or decertified by ethnicity and gender. This expanded data
collection would allow the Department to look at data across several
years to develop a thorough assessment of the impact of the DBE
certification process.
    We invite comment on expanding this collection to cover: (1) the
number and percentage of in-state and out-of-state DBE certifications
for socially and economically disadvantaged owners by gender and
ethnicity (Black American, Asian-Pacific American, Native American,
Hispanic American, Subcontinent-Asian American, and non-minority); (2)
the number of DBE

certification applications received from in-state and out-of-state
firms and the number found eligible and ineligible; (3) the number of
in-state and out-of-state firms decertified and summarily suspended;
(4) the number of in-state and out-of-state applications received for
an individualized determination of social and economic disadvantage
status; (5) the number of in-state and out-of-state firms certified
whose owner(s) made an individualized showing of social and economic
disadvantaged status; and (6) the number of DBEs pre-qualified in their
work type by the recipient.
    The Department proposes to create a similar data reporting
requirement for the ACDBE Program (excluding prequalification data).
The proposed rule would add a new paragraph to Sec.  23.27 that would
require state departments of transportation, on behalf of their UCP
members, to include ACDBE data in the yearly report to DOCR. This data
collection would provide the Department a yearly snapshot of the number
and percentage of ACDBEs. The Department anticipates that expanding the
collection to include information on ACDBEs would pose minimal burden
on recipients because UCPs are already required to report this data for
DBEs. It is highly useful in our view for data on ACDBEs to be reported
in order for the Department to gain a deeper understanding of the firms
that participate in that program and how these firms compare with the
rest of the airport concession community. It is important for the
Department to be able to do this in order to enhance the Department's
ability to conduct more detailed trend analyses of changes in ACDBE
participation levels and assess the program's overall success.

Subpart B--Administrative Requirements for DBE Programs for Federally
Assisted Contracting

4. Threshold Program Requirement for FTA Recipients (Sec.  26.21)

    Currently, the rule requires only those FAA and FTA recipients that
will award prime contracts with cumulative total value exceeding
$250,000 in a fiscal year to have a DBE Program. The $250,000 value for
the threshold was first introduced in a 1983 final rule, but it
originally meant that FTA and FAA recipients who received over $250,000
in a fiscal year were required to have a DBE Program--in 2000, the
$250,000 threshold was updated to apply to contract awards.
    There is little documentation as to the rationale for the threshold
when it was originally introduced. However, program experience shows
that recipients with lower dollar amounts of total prime contract
awards have low levels of DBE participation. Those lower contract
amounts necessarily imply low amounts of DBE participation simply
because the pool of available contract awards is small. In addition,
small prime contract awards have fewer opportunities for unbundling to
allow for subcontracting opportunities. It is only with subcontracting
opportunities that race-conscious awards can be used. Further,
subcontracts of small prime contracts are of low total value and may
not attract much interest from DBEs.
    The proposed rule makes one adjustment to the rule based on
observed changes in the consumer price index (CPI) from 1983 to 2020.
The change sets a new threshold level for FTA recipients that would
trigger full adherence to those rule requirements FTA deems essential
for all recipients. This change amends the rule so that FTA recipients
receiving planning, capital and/or operating assistance less than
$670,000 must maintain a program locally that includes the requirements
of Sec.  26.11, reporting and record keeping; Sec.  26.13, contract
assurances; Sec.  26.23, a policy statement; Sec.  26.39, fostering
small business participation; and Sec.  26.49, concerning transit
vehicle manufacturers. FTA recipients receiving planning, capital and/
or operating assistance that will award prime contracts (excluding
transit vehicle purchases) the cumulative total value of which exceeds
$670,000 in FTA funds in a Federal fiscal year must have a DBE Program
meeting all the requirements of the rule. The Department will adjust
the threshold for inflation in its discretion as the need arises.
    The Department conducted an economic analysis of this change,
identifying how many FTA recipients would no longer need a full program
(approximately 80), and the cost savings to those recipients and the
Department. FTA also conducted a public outreach session on October 14,
2021 and received general comments on changes to the DBE Program,
including increasing the threshold and amending the reporting
requirements for recipients of that OA. The Department found that
raising the threshold is expected to provide administrative cost
savings to FTA recipients with reduced reporting requirements and only
minor levels of reductions in total program-level DBE participation.
The FTA Office of Civil Rights will also experience reduced workload
related to monitoring, oversight, and training of these smaller
recipients. Further, the FTA Office of Civil Rights staff will be able
to direct their resources to recipients in other areas of need. That
redeployment of FTA staff resources may produce more DBE participation
from other recipients that may offset any losses in DBE participation
from recipients who are below the revised threshold.
    We anticipate that recipients would experience cost savings
resulting from lower administrative burdens if the threshold were
raised. The exact impacts of this change would vary from year to year,
given that recipients have varying amounts of Federal contract dollars
every year, but an average impact can be estimated. The categories of
cost savings included in the analysis are:
     Program development and goal setting: These are the
administrative costs associated with the development of a recipient's
DBE Program and establishing the DBE Program goals every three years.
This work involves some amount of effort by recipients. In some cases,
recipients may contract this work out to a consultant.
     Monitoring, reporting, and outreach: These are the
administrative costs incurred by the recipient related to administering
their DBE Program every year. The recipient must monitor their
contracts to ensure the work committed to DBEs is actually performed by
DBEs, and verify payments made to DBEs. The recipient performs this
work by conducting contract reviews and work site visits. Entities must
report on their DBE participation twice a year to FTA. They must also
conduct regular outreach to DBEs in their community.
     Conferences and trainings: Recipients may send their
employees to conferences or trainings related to the DBE Program. The
cost to the recipient is incurred through travel expenses and the
opportunity cost of the employee's time. Some trainings provided by
private companies and organizations include registration fees, but DOT
offers training free of charge. This analysis assumes no registration
fees for the conferences and trainings.
     DOT technical assistance: FTA provides technical
assistance to transit agencies for their DBE Programs. This cost is
measured by the typical number of hours spent by FTA staff providing
such assistance per recipient.
    The Department conducted a Regulatory Impact Analysis (RIA)
(available in the docket) of this proposal in connection with this
rulemaking; and believes that the revisions proposed reduces the
administrative burden of the DBE Program on recipients receiving less
funding and would have a minimal impact on race-neutral awards. We are
proposing to retain annual reporting

requirements, nondiscrimination contract assurances, strategies for
expanding contracts with small businesses, and transit vehicle
manufacturing requirements.

5. Unified Certification Program (UCP) DBE/ACDBE Directories
(Sec. Sec.  26.31 and 26.81(g))

    Under the current DBE and ACDBE rules, each UCP must maintain a
directory of all DBE and ACDBE firms, in the state in which the UCP is
located. The directories must include each firm's address, phone
number, and types of work the firm has been certified to perform.\5\
The directories must be publicly available both electronically and in
print. UCPs are to make additions, deletions, and other changes as soon
as they learn of them.
---------------------------------------------------------------------------

    \5\ The UCP directory provisions in Sec. Sec.  26.31 and
26.81(g) are applicable to the ACDBE program per Sec.  23.23(a).
---------------------------------------------------------------------------

    The Department enacted this requirement in 1999, noting in its
final rule that commenters discussed whether the directories should
include information concerning the qualifications of the firm to do
various sorts of work. For example, has the firm been pre-qualified by
the recipient or another state agency? Can it do creditable work? What
kinds of work does the firm prefer to do? Some commenters also
requested that the directory should list the geographical areas in
which the firm is willing to work.
    The primary purpose of the directories is to show the results of
the certification process, with sufficient identifying information for
prime contractors to contact the DBEs or ACDBEs for those areas of work
or supply they could perform or provide on a potential project or
concession opportunity. Information about firms' qualifications,
geographical preferences for work, performance track record, capital,
etc., were not required to be part of the directories because, as
stated in the 1999 preamble, this would ``clutter up the directory and
dilute its focus on certification.'' The Department expected that a
prime contractor or prime concessionaire would contact a DBE or ACDBE
to discuss its qualifications before hiring it to perform work as a
subcontractor, sub-concessionaire, or supplier on a federally assisted
contract or concession opportunity. While the Department continues to
believe that the directories serve this purpose, the current regulation
was written before the widespread adoption of the internet and the
availability of online resources.
    The proposed rule would direct UCPs to expand their directories of
DBE and ACDBE firms, allowing them to display other essential
information about DBEs and ACDBEs that attests to the firms' ability,
availability, and capacity to perform work. While the UCP would in no
way be required to vouch for the quality of the DBE or ACDBE's work, it
could expand information regarding a DBE or ACDBE beyond merely its
contact information and NAICS code(s). Under the proposal, all UCPs
would amend their directories so that firms would have a standard set
of options for information they can choose to make public, such as a
capability statement, state licenses held, pre-qualifications,
personnel and firm qualifications, bonding coverage, recently completed
project(s), equipment capability, and a link to the firm's website.
Under the proposed rule, UCPs would be required to incorporate these
information fields as additional criteria by which the public can
search and filter the UCP directory. We invite comments about the
specific categories of information that prime contractors or prime
concessionaires and DBEs or ACDBEs would find useful to have publicly
available. We anticipate that most DBEs and ACDBEs will avail
themselves of this opportunity, recognizing this is a cost-effective
and timesaving alternative to market their qualifications while
providing a one-stop baseline tool for prime contractors and prime
concessionaires as they seek out potential subcontractors and sub-
concessionaires. Further, the Department also proposes eliminating the
paper requirement for the directory in Sec.  26.81; we see no continued
utility for this requirement as all directories are available online.
    We invite comments on whether prime contractors and prime
concessionaires will see time-and-resource savings with such a change
to the directory. There is a clear benefit to prime contractors and
prime concessionaires that seek out information regarding a firm's
capabilities, experience, and past performance. Given the growing size
of DBE/ACDBE directories each year, this may expedite contractor or
concessionaire selection and overall bid or solicitation response
times. Additional time savings would be realized in ``contract or
concession specific goal'' situations, wherein an award to a prime
contractor or prime concessionaire cannot be made unless that prime
contractor or prime concessionaire commits to contracting to a
sufficient number of DBEs or ACDBEs to meet a contract or concession
specific goal or demonstrates good faith efforts if it falls short of
the goal through contracting commitments. Also, when a prime contractor
complies with the regulatory requirements to terminate and replace a
DBE or ACDBE to which it committed at the time of award, it is
typically required to make good faith efforts to replace that DBE or
ACDBE. A more informative directory could assist prime contractors or
prime concessionaires with the replacement process as well and could be
used as one element in the good faith efforts analysis, a point
referenced by prime contracting organizations in response to the
Department's October 2017 request for public input on existing
regulatory and agency actions. (82 FR 45750 (Oct. 2, 2017))
    We are aware that some UCPs have already expanded the search
capabilities of their current directories of DBE and ACDBE firms. We
anticipate UCPs being able to implement the requirement by January 1,
2024, or within 180 days of the final rule, but we invite comment on
how long UCPs expect the proposed enhancements may take, if
enhancements are feasible given existing resources, and whether the
benefits we describe above outweigh any upfront costs. We invite
comment on whether the directory enhancements should consist of drop-
down menus that draw from available data sources, open-ended fields
with a word limitation (e.g., 250 words more or less), or some
combination thereof. We invite comment on which of these approaches
would be most conducive to useful search functionality, feasibility,
and resource efficiency. If the proposed change takes effect, the
Department anticipates having a phase-in period for the additional
requirements described and will not make compliance mandatory until the
certification members of UCPs can build the enhancements and make them
operational.

6. Monitoring Requirements (Sec.  26.37)

    Since 1999, Sec.  26.37 has set forth a recipient's responsibility
for monitoring the performance of other program participants. This
regulation in Subpart B, however, focuses on a recipient's
responsibility to include in its DBE Program a monitoring and
enforcement mechanism to verify that work committed to a DBE at
contract award is actually performed by that DBE. In addition, the
recipient must keep a running tally of actual DBE payments to ensure
that DBE participation is credited toward overall and contract

goals only when payments are actually made to DBEs.
    The Department has learned that certain language in Sec.  26.55(h)
has caused confusion among recipients. The heading of this section is
misleading; it suggests that the section is limited to monitoring the
performance of other program participants, when it also sets forth
significant oversight requirements for recipients, including the
requirement to keep a ``running tally'' of payments toward the
achievement of the recipient's overall goal as well as each contract
with a DBE goal. Recipients also questioned how the requirement to
certify in writing each DBE was actually performing the work for which
it was committed intersected with Sec.  26.55, which requires
recipients to count DBE participation toward its annual goal and a
contract goal only if the DBE is performing a commercially useful
function (CUF).
    The Department also learned that the requirement for the recipient
to keep a ``running tally'' was often overlooked or misconstrued.
Finally, the Department learned that many recipients were confused by
use of the word ``certification,'' used in this section as it pertains
to the requirement that there must be written, signed confirmation that
each DBE was monitored. The word ``certification'' in the DBE Program
more often than not refers to the application process a firm undertakes
to achieve DBE status or ``certification.''
    We seek to clarify Sec.  26.37 by changing the title from ``What
are a recipient's responsibilities for monitoring the performance of
other program participants?'' to ``What are a recipient's
responsibilities for monitoring?'' We believe that this would better
describe the substantive content of the regulatory requirements.
    The Department also wants to make clear that even DBEs used race-
neutrally must be monitored to count toward a recipient's overall goal.
We have learned that some recipients do not monitor DBE participation
unless there is a race-conscious contract goal.
    We also seek to combine the requirements under this section with
the commercially useful function (CUF) requirements in Sec.  26.55. In
order for a recipient to verify that a DBE is performing the work it
was committed to perform, the recipient would be required to also
verify that the DBE is performing in the manner in which it can be
counted toward the recipient's overall goal and a contract goal. This
would clarify that while a CUF review can be an additional step in
monitoring, a CUF review is necessary for every DBE that performs for
credit toward a recipient's overall goal and a contract goal. A CUF
review could be combined with the Sec.  26.37 requirement for the
written verification or performed in a subsequent monitoring. Our
official guidance on this section also makes this clear.\6\
---------------------------------------------------------------------------

    \6\ See ``Official Questions and Answers (Q&A's) Disadvantaged
Business Enterprise Program Regulation (49 CFR 26)--Commercially
Useful Function'' at https://www.transportation.gov/sites/dot.gov/files/2020-01/docr-20180425-001part26qa.pdf.
---------------------------------------------------------------------------

    The Department seeks to emphasize the importance of the ``running
tally'' requirement. Since 1999, the Department has made it clear that
a running tally applies to a recipient's overall goal and contract
goals. Therefore, we want to underscore in this revision that each
recipient would be required to keep a running tally, or ongoing
accounting, of its attainment of its overall DBE goal (including race-
neutral DBE participation) and make adjustments, if necessary, as set
forth in Sec.  26.51(d).
    The running tally requirement would also require recipients to keep
an accounting of each contractor's progress in attaining a contract
goal through progressive payments to the committed DBE. This would be
necessary to allow recipients to intervene in real time when and/or if
they observe a prime contractor fall short of its contract goal.
Keeping an accounting of a prime contractor's progress toward meeting a
contract goal would allow recipients to observe when a prime contractor
is not on target toward achieving the goal. This information would
allow the recipient to question whether there has been unreported
termination of a DBE pursuant to a change order or otherwise; or
whether the DBE has withdrawn, and whether the contractor should be
using good faith efforts to find additional DBE credit, etc. If a
recipient were to wait until the end of the contract to match
commitments to actual payments, it would be too late to rectify any
shortfalls during contract performance. This is also why the Department
is also removing the sentence that indicates the monitoring requirement
in this section could be performed during contract close-out reviews.
The elimination of this sentence also conforms to the Department's
official guidance on this issue.\7\
---------------------------------------------------------------------------

    \7\ See ``Recipient Responsibilities for Oversight and
Monitoring of DBE Participation'' at https://www.transportation.gov/sites/dot.gov/files/docs/mission/civil-rights/disadvantaged-business-enterprise/318146/oversight-and-monitoring-dbe-participation.pdf.
---------------------------------------------------------------------------

    The Department proposes replacing the word ``certification'' with
``verification'' to avoid confusion with other parts of the regulation.
We also recommend eliminating the last sentence in this section
regarding DBE reports because it is misplaced.

Subpart C--Goals, Good Faith Efforts, and Counting

7. Prompt Payment and Retainage (Sec.  26.29)

    In the 1999 preamble to the final rule, we stated that prompt
payment mechanisms are an important race-neutral mechanism that can
benefit DBEs and other small businesses. Without the protections
embedded in the rule, we remain concerned that DBE subcontractors can
be significantly--and, to the extent that they tend to be smaller than
non-DBEs, disproportionately--affected by late payments from prime
contractors. As we said in 1999, lack of prompt payment constitutes a
very real barrier to the ability of DBEs to compete in the marketplace;
since that time, the Department has required recipients to take
reasonable steps to address this barrier.
    In the 2021 BIL (section 1101(e)(8)) Congress repeated mandates it
made in prior surface authorizations that the Department should take
additional steps to ensure that recipients comply with Sec.  26.29.
Similarly, the Department's Office of Inspector General recommended the
Department improve oversight of this issue.\8\
---------------------------------------------------------------------------

    \8\ See ``New Disadvantaged Business Enterprise Firms Face
Additional Barriers to Obtaining Work at the Nation's Largest
Airports,'' USDOT Office of Inspector General, Report ZA-2016-002
(Nov. 3, 2015) at https://www.oig.dot.gov/sites/default/files/New%20DBE%20Participation%20Is%20Decreasing%20at%20the%20Nation%E2%80%99%20Largest%20Ariports%2C%20and%20Certification%20Barriers%20Exist.pdf.
---------------------------------------------------------------------------

    In response, the OAs recommended that guidance on this section was
necessary to underscore the Department's intent. Thus, on April 15,
2016, we published official guidance \9\ consisting of 12 questions and
answers regarding Sec.  26.29. With respect to prompt payment and
return of retainage monitoring, the Department specified the need for
recipients to create a mechanism to affirmatively monitor a
contractor's compliance with subcontractor prompt payment and return of
retainage requirements, and that a recipient's reliance on complaints
or notifications from subcontractors is

insufficient. The guidance provides, in relevant part, as follows:
---------------------------------------------------------------------------

    \9\ See ``USDOT Official Questions and Answers (Q&A's)
Disadvantaged Business Enterprise Program Regulation (49 CFR 26)''
at https://www.transportation.gov/sites/dot.gov/files/docs/Official%20Questions%20and%20Answers%204-15-16.pdf.

    Relying only on complaints or notifications from subcontractors
about a contractor's failure to comply with prompt payment and
retainage requirements is not a sufficient mechanism to enforce the
requirements of section 26.29 . . .
    While this section does not mandate that a recipient employ a
specific type of mechanism for monitoring prompt payment, recipients
are expected to take affirmative steps to monitor and enforce prompt
payment and retainage requirements.

    The guidance continues, providing examples of affirmative
monitoring methods.
    In 2020, FHWA performed a national review on recipient compliance
with prompt payment and return of retainage compliance. Among other
things, the review found most recipients are not affirmatively
monitoring subcontractor payments on FHWA-assisted projects. Many
recipients wait for subcontractor payment complaints or other
notification of non-payment before taking any action.
    The Department believes including in this regulatory section a
specific reference to the need for affirmative monitoring of
subcontractor prompt payment and return of retainage by the recipient
will reinforce the Department's position on this matter. This revision
also makes clear that the requirements within this rule are intended to
flow down to all lower tier subcontractors through an addition of a
paragraph (f) to Sec.  26.29.

8. Transit Vehicle Manufacturers (TVMs) (Sec.  26.49)

Section Heading

    The current heading of Sec.  26.49 is ``How are overall goals
established for transit vehicle manufacturers?'' The heading of Sec.
26.49 has remained constant since its introduction in 1999, but it no
longer accurately describes the section's contents. The Department
proposes to revise the heading to ``What are the requirements for TVMs
and for awarding DOT-assisted contracts to TVMs?'' This heading would
describe the contents of the section more accurately, which includes
requirements for TVMs that go beyond goal setting and pre- and post-
award requirements for recipients.

Terminology and Abbreviations

    Section 26.49 in the current rule uses language and terms
inconsistently and does not match the language and terms used by the
Department in related documents and used by the industry.
    The Department proposes to abbreviate ``transit vehicle
manufacturer'' to ``TVM'' throughout Sec.  26.49 so that the term's
usage is uniform throughout part 26. The Department proposes to revise
Sec.  26.49(b) to use ``you'' and its forms consistently when referring
to a party subject to this regulatory provision.
    The Department also proposes to change references to ``certified''
TVMs to ``eligible'' TVMs in Sec.  26.49(a)(1) and (2) to reduce any
confusion as to whether a TVM must first receive a certification from
FTA prior to becoming eligible to bid on FTA-assisted transit vehicle
procurements. While FTA does evaluate whether a vehicle manufacturer
meets the qualifications for a TVM and whether it is eligible to bid,
such entities do not receive any sort of formal certification, and
their eligibility is always conditioned on whether they are maintaining
a DBE Program in compliance with part 26 and in good faith. We expect
that this change will reduce the likelihood of a recipient mistakenly
determining that a TVM is ineligible to bid because the TVM is unable
to produce a certification from FTA.

Post-Award Reporting Requirements

    Section 26.49(a) details the pre- and post-award requirements for
FTA recipients engaged in procuring transit vehicles with FTA
assistance.
    Section 26.49(a)(4) requires FTA recipients ``to submit within 30
days of making an award, the name of the successful bidder, and the
total dollar value of the contract in the manner prescribed in the
grant agreement.'' Since 2016, the Department has maintained an
internet-based reporting form for recipients to fulfill this
requirement. The Department has found that as currently written, Sec.
26.49(a)(4) results in inconsistent and inaccurate reporting. These
issues are especially prevalent when recipients report contracts with
options or schedules.
    Recipients occasionally do not know which events trigger the 30-day
requirement and from which day they must begin counting. Some of the
confusion comes from the use of the word ``award.'' Generally, FTA
defines ``award'' as the Federal assistance FTA has provided to the
recipient to carry out the scope of work that FTA has approved.
However, Sec.  26.49(a)(4) uses ``award'' to refer to the procurement
mechanism used by a recipient to procure a transit vehicle from a TVM.
Additionally, some recipients are unsure when to report when they
exercise an option or receive a delivery from a schedule. One of the
most common errors the Department observes related to this requirement
is a recipient reporting the date the initial procurement occurred
instead of the date the option was exercised. To alleviate this
confusion, the Department proposes to replace ``making an award'' with
``becoming contractually required to procure a transit vehicle'' in
Sec.  26.49(a)(4), and to revise that paragraph for clarity. This
clarifies that a recipient needs to reference its contract with the TVM
to determine the trigger for the reporting requirements.
    Recipients have also expressed confusion about which information is
required to be reported. Recipients sometimes do not know what to
include and exclude from the report. Section 26.49(a)(4) states that
recipients must report the ``total dollar value of the contract in the
manner prescribed in the grant agreement.'' Since the Uniform Report
specifies that recipients are only to report the Federal share, some
recipients misinterpret the language in Sec.  26.49(a)(4) to mean both
the Federal and non-Federal share.
    Additionally, when reporting exercised options or scheduled
deliveries, some recipients report the value of the entire contract. In
practice, they must only report the value of the vehicles received from
the option or schedule. For example, if a recipient contracts with a
TVM to purchase 10 buses at a cost of $100,000 per bus, with the option
to purchase up to 10 additional buses at the same price per bus over
the next two years, and the Federal share is 50 percent; the recipient
is to report only $500,000 for the initial contract, and only $50,000
per bus if and only if the recipient exercises the option to procure
additional buses.
    To alleviate this misunderstanding, the Department proposes to
specify in Sec.  26.49(a)(4) that the recipient is to report ``the
Federal share of the contractual commitment at that time.'' This
clarifies that only the Federal share is to be reported and only the
funds actually required to be paid at that time.
    These proposals, if adopted, would result in the Department
collecting the information most useful to it, including in situations
in which recipients use options and schedules. The Department clarifies
that when a recipient uses a schedule in a contract and becomes
contractually obligated to pay for the vehicles that will be delivered
in the future as of the initial contract signing, the recipient must
report once and only once. This is because the entirety of the funds
will be expended by the recipient and received by the TVM in a single
reporting period.

Awards to Transit Vehicle Dealerships

    As currently written, part 26 does not specifically address
situations in which an FTA recipient procures transit vehicles through
a dealership. Reports received by FTA show that the transit vehicle
market includes both direct-from-manufacturer procurements and
procurements from dealerships. Previously, the rationale for requiring
TVMs to maintain a DBE Program was that TVMs control their
subcontracting opportunities and thus are better positioned than
recipients to promote a level playing field for DBEs in the transit
vehicle manufacturing market. Transit vehicle dealerships, however, are
not required to maintain a DBE Program. Consequently, a transit vehicle
dealership is generally not eligible to bid on FTA-assisted transit
vehicle contracts. Recipients may procure vehicles from these entities
but must treat such procurements as any other procurement when
calculating their DBE goal. Thus, recipients may only procure transit
vehicles from transit vehicle dealerships by establishing project-
specific goals pursuant to Sec.  26.49(f) and must report using the
Uniform Report for that project. Further, many FTA recipients currently
incorrectly report contracts with dealerships as if they were contracts
with TVMs, complicating FTA's oversight efforts and resulting in
inaccurate data.
    The Department proposes adding new paragraph (a)(5) to Sec.  26.49
to expressly state that a contract with a transit vehicle dealership
does not qualify as a contract with a TVM, even if a TVM manufactured
the vehicles procured by the recipient from the dealership. Further, as
described in the discussion of Sec.  26.5, the Department proposes
defining ``transit vehicle dealership'' and ``transit vehicle'' to
clarify which procurements qualify as transit vehicle procurements. The
Department expects that clarifying this aspect of the DBE Program will
result in more accurate DBE goals, more accurate reporting, and
generally greater compliance.

TVM Goal Setting, Submission, and Review

    As currently written, Sec.  26.49(b) states that development,
submission, and approval of goals is generally the same for TVMs as it
is for recipients. Recipients and TVMs have expressed confusion
regarding how frequently TVMs must submit their goal, what period their
goal should cover, and whether FTA approval is required prior to the
TVM becoming eligible to bid. The Department proposes adding language
to expressly state that TVMs' goals are set and submitted annually.
Further, the Department proposes eliminating the language related to
FTA's approval to harmonize the requirements for TVMs with the
requirements for recipients.
    The proposed removal of the ``approval'' language is not intended
to have any substantive effect on the conditions necessary for a TVM to
be eligible to bid on FTA-assisted transit vehicle procurements, nor
any effect on the process by which FTA reviews a TVM's goal and goal
methodology. Even though Sec.  26.49(a)(1) expressly states that TVMs
that have submitted goals that have yet to be approved are eligible to
bid, recipients and TVMs often express confusion over whether prior
approval is required. Further, Sec.  26.45(f)(4), part of the section
TVMs are to reference when setting their goals, expressly states that
recipients ``are not required to obtain prior Operating Administration
concurrence with [their] overall goal[s].'' Additionally, Sec.
26.49(b)(2) expressly states that the requirements for goal approval
apply to TVMs in the same manner that they apply to recipients. Thus,
by removing ``approval'' from Sec.  26.49(b), the Department expects
that recipients and TVMs will better understand that FTA need not
approve a TVM's goal prior to the TVM becoming eligible to bid without
affecting the eligibility processes and conditions.

TVM Uniform Report

    As currently written, Sec.  26.49(c) requires ``transit vehicle
manufacturers awarded'' to submit the Uniform Report in the same manner
as recipients to remain eligible to bid on FTA-assisted transit vehicle
procurements. Some TVMs have expressed confusion over the word
``awarded'' and that confusion has resulted in eligible TVMs failing to
report properly. These TVMs misinterpret the current text to mean that
only TVMs that have actually been awarded contracts by FTA need to
submit the Uniform Report. However, TVMs that are eligible to bid on
FTA-assisted transit vehicle procurements in a given fiscal year must
submit the Uniform Reports for that fiscal year, even if they were not
awarded any contracts with FTA assistance. Reporting zero contracts is
important for the Department's oversight efforts because it allows the
Department to cross-reference the data provided by TVMs with data
provided by recipients.
    The Department proposes eliminating the word ``awarded'' to clarify
that an eligible TVM must fulfill the relevant reporting requirements
for the years in which it is eligible. This revision should not be
construed to mean that an entity that otherwise qualifies as a TVM is
required to submit any reports to FTA or the Department if it is not
eligible to bid on FTA-assisted transit vehicle procurements.

9. Good Faith Efforts Procedures for Contracts With DBE Goals (Sec.
26.53)

    Considerations for administering the DBE Program in the context of
a design-build contract were introduced by the Department in 1999, in
Sec.  26.53(e). In this section of the regulation, pertaining to
contract goal attainment, the Department recognized that at the time a
design-build contract is awarded, the project is minimally designed,
and future subcontracting opportunities are unknown. In light of this,
the Department acknowledged that specific DBEs that will subsequently
be involved in the contract cannot reasonably be identified as required
under paragraph (b)(2) of this section.

DBE Performance Plan (DPP)

    To address this issue, in 2014, DOT revised Sec.  26.53(b)(3) to
provide that bidders in negotiated procurements, such as design-build
procurements, may make a commitment to meet the DBE goal at the time of
their response to initial proposals but provide the information
required by paragraph (b)(2) of this section before the recipient makes
its final contractor selection. However, challenges to identifying
specific DBEs when the project is minimally designed, and
subcontracting opportunities are unknown, remain at the time the
recipient makes its final selection and even after contract award.
Further, in the event the design builder is unable to meet the goal
through committing to enough DBEs before the recipient makes its final
selection, the design builder must submit documented good faith
efforts. In practice, the Department has noted that by requiring the
contractor to identify specific DBEs and document good faith efforts at
this early stage of a design-build project, goal achievement is often
attained through minimal DBE subcontracting commitments and large
submissions of documented good faith efforts. Thus, as currently
written, Sec.  26.53(b)(3)(ii) may unnecessarily limit the
participation of DBEs in a design-build project that likely includes an
abundance of subcontracting opportunities.
    Since 1999, design-build contracts have become much more prevalent,
and best practices for administering the DBE Program in the context of
this contract delivery method have been identified. The Department
proposes to revise

Sec.  26.53(e), to align with current best practices which allow for
continued DBE participation as the contract proceeds and definitive
subcontracting opportunities arise.
    The Department proposes to revise Sec.  26.53(e), to direct
recipients requesting proposals for a design-build project to require a
design builder to submit a DBE Performance Plan (DPP) with its
proposal. The DPP replaces the need to commit to specific DBEs or
submit good faith efforts at the time of the proposal or prior to final
selection. To be considered responsive, a contractor's DPP must include
a commitment to meet the goal by providing details of the types of work
and projected dollar amounts the contractor will solicit DBEs to
perform. The DPP must also include an estimated time frame in which
actual DBE subcontracts would be executed. Once the contract is
awarded, the recipient must provide ongoing monitoring and oversight of
the contractor to evaluate its good faith efforts to comply with the
DPP and schedule. The parties may agree to revise the DPP throughout
the life of the project, e.g., replacing the type of work items the
contractor will solicit DBEs to perform and/or adjusting the proposed
schedule as long as the contractor continues to use good faith efforts
to meet the goal. The Department believes this method will result in
greater opportunities for DBEs to participate in design-build
contracts.
    In addition, DOT proposes clarifying Sec.  26.53(b)(3)(ii) to
address negotiated procurements outside of the context of design-build
procurements.

Terminations

    Since 1999, Sec.  26.53(f)(1) has prohibited a prime contractor
from terminating a DBE used in response to a contract goal without the
recipient's prior written consent. The Department implemented
protections in these situations to prevent abuse, i.e., that absent a
recipient's consent, a prime contractor may not terminate a DBE
committed on the contract for convenience and then perform the work
with its own forces. Also, since 1999, Sec.  26.53(g) has required a
prime contractor that has terminated a DBE to make good faith efforts
to substitute another DBE to perform the same amount of work as the DBE
that was terminated. In 2005, these termination and substitution
provisions in Sec.  26.53(f) and (g) were made applicable by Sec.
23.25(e)(1)(iv) to concession specific goals. The Department expanded
Sec.  26.53(f)(4) and (5) in 2011 to require recipients to include a
provision in its prime contract requiring the prime contractor or prime
concessionaire to give written notice to the DBE or ACDBE subcontractor
or sub-concessionaire (within five days) of its intention to request
termination and/or substitution, and the reasons for the request. The
prime contractor or prime concessionaire must also give the DBE or
ACDBE five days to respond to the prime contractor's or prime
concessionaire's notice and advise the recipient of any reasons the
request should not be approved.
    The 2014 revisions to Sec.  26.53(g) expanded the good faith
efforts requirements a prime contractor or prime concessionaire must
follow to replace the terminated DBE or ACDBE. After making this
change, the Department has learned that because the section above
combines the terms ``terminate and/or substitute,'' some recipients
permit a prime contractor or prime concessionaire that wishes to
terminate a DBE or ACDBE in response to a contract or concession
specific goal to seek written concurrence only for a DBE or ACDBE
substitution. This action often omits the procedures a prime contractor
or prime concessionaire is required to follow prior to terminating a
firm. The required actions a prime contractor or prime concessionaire
must take prior to terminating a firm provide the DBE or ACDBE with an
opportunity to respond in writing to the recipient, indicating the
reasons why it objects to the proposed termination. Requiring a prime
contractor or prime concessionaire only to seek written concurrence for
a proposed substitution deprives the DBE or ACDBE from these due
process protections.
    To avoid this unintended result, the Department proposes a minor
revision to this section to eliminate the pairing of ``termination''
with ``substitution'' to clarify that proposed DBE and ACDBE
terminations require the prime contractor or prime concessionaire to
follow specific actions and provide a DBE or ACDBE an opportunity to
respond before a recipient may provide written concurrence or denial.
Under this proposed revision, the prime contractor or prime
concessionaire would be permitted to propose a substitution only after
a recipient's written concurrence with the proposed termination is
received.
    The revisions also make clear that a prime contractor's or prime
concessionaire's desire to eliminate a portion of the work committed to
a DBE or ACDBE as a condition of award would also constitute a
``termination'' in which the prime contractor or prime concessionaire
and recipient must follow the above-referenced procedures.

10. DBE Supplier Credit (Sec.  26.55(e))

    The Department first adopted regulatory provisions related to
``regular dealer'' suppliers in the 1987 DBE final rule (52 FR 39225
(Oct. 21, 1987)) (revising then-existing Sec.  23.47(e) to Sec.
23.47(e) and (f)). This regulation has gone through several revisions
since then, most recently in 2014 (79 FR 59566 (Oct. 2, 2014)), and now
appears as Sec.  26.55(e). This section assists recipients in
evaluating the appropriate credit to be given toward a contract goal
(and a recipient's overall goal) when a DBE provides services as a
manufacturer, supplier, or transaction facilitator; the latter is
sometimes referred to as packager, broker, manufacturers'
representative, or other firm that arranges or expedites transactions.
    The Department requested stakeholder feedback on the regular dealer
concept in the 2012 Notice of Proposed Rulemaking. See 77 FR 54592
(Sept. 6, 2012), which led to the 2014 final rule. The preamble to the
2014 final rule states: ``Specifically, we sought comment on: (1) how,
if at all, changes in the way business is conducted should result in
changes in the way DBE credit is counted in supply situations;? (2)
what is the appropriate measure of the value added by a DBE that does
not play a traditional regular dealer/middleman role in a transaction;?
and (3) do the policy considerations for the current 60% regular dealer
credit actually influence more use of DBEs as contractors that receive
100% credit?'' See 79 FR 59566, 59588 (Oct. 2, 2014).
    In response to the 2012 NPRM, the Department received over 50
comments from prime contractors, DBEs, stakeholder associations, and
recipients, many of which emphasized the need for additional
clarification of, or changes to, the terminology used to describe
regular dealers, middlemen, transaction expediters, and brokers. The
Department responded that more analysis and discussion was needed to
make informed policy decisions about how best to amend the regulations
governing regular dealers and transaction facilitators; it committed to
continuing the conversation through future stakeholder meetings.
    On September 26 and 27, 2018, the Department held stakeholder
meetings on the topic of ``regular dealers.'' Prime contractors,
recipients, stakeholder associations, and DBEs, attended and many
shared valuable information from their various perspectives. While the
Department often hears that the ``regular dealer'' concept is outdated,
does not reflect current industry practice, and

should be eliminated, most meeting contributors did not propose doing
away with the regular dealer concept. Most acknowledged that even
though the market has changed to allow prime contractors the ability to
obtain goods through e-commerce without the need for a ``middle-man,''
many DBE suppliers reported that they rely upon the DBE Program and
contract goals to maintain a viable business. Similarly, prime
contractors conveyed their reliance on DBE suppliers to assist in
meeting contract goals.
    Based on the input from the stakeholder sessions and DOT's
continued analysis of the role of the regular dealer provisions in the
success of the DBE Program, DOT proposes several modifications to the
regular dealer provisions designed to better align with modern business
practices. Modifications to this section also include clarifying the
definition of ``manufacturer'' and ``suppliers of specialty items.''

Limiting DBE Supplier Goal Credit

    Since the beginning of the DBE Program in 1980, DOT has never
placed a cap on the total amount of credit a prime contractor could
obtain from supply contracts toward meeting a contract goal. DOT has
long had a concern, however, that if prime contractors could frequently
meet contract goals primarily through supply contracts with DBEs,
opportunities for DBEs that perform other types of work would be too
limited. DOT addressed this concern by allowing prime contractors to
only count a certain percentage of the value of individual supply
contracts toward contract goals. The Department's initial comprehensive
Minority Business Enterprise regulation, issued in 1980, limited goal
credit for a contract with a non-manufacturer supplier to 20 percent of
the expenditures with the supplier, provided the supplier performed a
commercially useful function (CUF).\10\ In 1987, based on feedback from
stakeholders, DOT adjusted the limit on goal credit to 60 percent of
expenditures with a non-manufacturer supplier, determining that the
adjusted figure would better balance the considerations that too low of
a credit figure would unduly limit participation by MBE suppliers and
that too high of a figure would unduly limit participation by other MBE
firms (e.g., construction contractors). The 60 percent figure was set
in 1987.\11\
---------------------------------------------------------------------------

    \10\ See 45 FR 21172, 21181 (Mar. 31, 1980) available at https://www.transportation.gov/sites/dot.gov/files/2020-06/1980%20Final%20Rule%2045%20Fed.%20Reg.%2020771%2C%2021172%28Mar.%2031%2C%201980%29.pdf.
    \11\ See 52 FR 39225 (Oct. 21, 1987) available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/1987-final-rule).
---------------------------------------------------------------------------

    During the 2018 stakeholder meetings, some DBE participants
conveyed that although crediting suppliers is limited to 60 percent of
the value of the contract, some contractors, are still able to meet all
or most of a contract goal through DBE suppliers, especially suppliers
that provide high-cost or bulk items such as petroleum or steel,
diminishing or even eliminating the need for the prime to employ
additional DBE subcontractors on a project.
    In consideration of the comments received, the Department proposes
to revise this Part by adding a provision at Sec.  26.55(e)(6) to limit
the total allowable credit for a prime contractor's expenditures with
DBE suppliers (manufacturers, regular dealers, distributors, and
transaction facilitators) to no more than 50 percent of the contract
goal. This revision would allow exceptions to the crediting limit (50
percent) for DBE material suppliers on a contract-by-contract basis
(for example, certain contracts may be material-intensive), with the
prior approval of the appropriate OA.
    The following hypothetical is an example of how DBE credit should
be applied under the proposed rule:

    A prime contractor seeks to bid on a $1M contract with a DBE
goal of 20%. The prime contractor's total creditable portion of the
commitment submitted to meet the contract goal-cannot exceed
$100,000 in DBE material supplier participation: ($1M x 0.2 =
$200,000 (total amount to meet goal)) ($200,000 x 50% = $100,000
(material supplier limit)). For example, the prime will use a DBE
manufacturer of bricks for $50,000 and a regular dealer of steel
costing $100,000. The regular dealer of steel can only count 60% of
the cost of steel ($100,000 x 0.6 = $60,000). The total amount for
DBE supplies is ($50,000 plus $60,000 = $110,000). The prime can
only count $100,000.

Evaluating a Supplier's Designation as a Regular Dealer

    The Department proposes to continue to credit 60 percent of the
cost of supplies toward the contract goal (and recipient's overall
goal) should a DBE meet the regular dealer requirements. This
determination is made up of two components: (1) whether the DBE is an
established business regularly engaged in the sale or lease of a
product of the ``general character'' of that required under the
contract; and (2) whether the DBE meets certain performance
requirements in supplying the item.
    The Department has learned that recipients often find it difficult
to determine whether a DBE is ``regularly engaged'' in a supply
activity, versus a firm that occasionally engages in such work or does
so on an ad hoc or contract-by-contract basis. Similarly, recipients
find it difficult to determine if the DBE regularly sells products of
the ``general character'' of those called for in a specific contract.
Moreover, recipients often wait to make these determinations until
after the contract is awarded, during a CUF review in the field. While
field inspectors performing CUF monitoring can evaluate a DBE
supplier's performance, they are unlikely to have a method to determine
if the DBE supplier meets the fundamental criteria to be considered a
regular dealer.
    In a design-bid-build contract, contractors/bidders must submit,
either at the time of bid or within 5 days thereafter, information
regarding the specific DBE firms to which they have committed to meet a
contract goal. To determine if a contractor/bidder is eligible for
contract award, recipients must evaluate these commitments to determine
if the contractor/bidder met the goal either by sufficient
subcontracting to DBEs and/or by demonstrating sufficient good faith
efforts. See Sec.  26.53(b). Contractor/bidder commitments often
include the use of DBE suppliers and indicate 60 percent credit of the
cost of the supplies toward goal achievement.
    The Department has learned that many recipients accept the 60
percent commitment at face value without knowing whether the DBE
``regularly engages'' in the purchase and sale or lease of items, or
those of the ``general character,'' that it is committed to supply for
the contract at issue.
    This face-value determination could affect whether a contractor/
bidder has actually met the contract goal and is eligible for contract
award. To avoid overcounting upfront toward contract goal achievement
prior to contract award, and potential overcounting of goal credit in
the field, the Department proposes to add a requirement in Sec.
26.55(e)(2)(iv) for a recipient to establish a system to determine,
prior to award, that the DBE supplier meets the fundamental
characteristics of a ``regular dealer,'' i.e., whether the committed
DBE is ``regularly engaged'' in the purchase or sale of items, or those
of the ``general character,'' called for in the contract. (In the race-
neutral context, this information should first be considered prior to
entering the DBE's participation into the recipient's reporting system,
which usually occurs when subcontracts are approved.) To make such a
determination, the

recipient must evaluate whether the DBE supplier keeps sufficient
quantities of the items in question and regularly sells the items to a
sector of the public that demands such items.
    To address the second component of the determination, the
Department proposes under Sec.  26.55(e)(2)(iv)(A) to add a requirement
that a recipient establish a system, pre-award, to determine whether a
DBE supplier submitted by the contractor/bidder as a ``regular dealer''
has demonstrated capacity and intent to perform as a regular dealer to
ensure preliminary counting determinations are based on the DBE's
capacity and intent to comply with the CUF requirements. Such
procedures would be flexible but should include preliminary questions
to identify whether the products sold or leased will be provided from
the DBE's inventory or whether the DBE will have physical possession
before they are sold or leased to the prime.
    Under this same section, these procedures would also address the
supply of bulk items by including questions on the disclosure of
information to determine if the DBE will deliver the items using
distribution equipment it owns and operates. This system is necessary
to provide a sound basis for evaluating goal attainment prior to
contract award and is necessary to support the likelihood that the DBE
supplier will actually perform as a regular dealer in the field. Should
the additional information a recipient receives result in a
determination that the committed DBE supplier's services would not be
entitled to the goal credit listed, the recipient would then determine
that the contractor/bidder fell short of the goal and would then
evaluate the bidder's good faith efforts to determine eligibility for
contract award or subcontractor approval.
    Ultimately, goal crediting would be made on a contract-by-contract
basis contingent upon the outcome of a recipient's final CUF and
counting determination of the DBE supplier's performance during the
contract.

Drop-Shipping and Delivery From Other Sources

    Many DBE suppliers said that the absolute prohibition on drop-
shipping materials from the manufacturer to the desired location
severely impacts their ability to compete with non-DBE suppliers. On
the other hand, it is of concern to the Department and DBE
subcontractors that a firm would receive 60 percent credit of the cost
of supplies if the DBE's role is limited to making phone calls or
sending emails to manufacturers or suppliers and asking them to drop-
ship the materials to the desired location. The latter role is akin to
a broker or transaction facilitator, and credit should be limited to
the amount paid by the prime as a commission or fee for these services.
    During the 2018 stakeholder meetings, the Department learned that
the prohibition of drop-shipping materials is especially of concern to
DBEs with distributorship agreements for the supply of bulk items.
Those with distributorship agreements conveyed that these agreements
with manufacturers are limited in nature, costly, and require them to
assume significant risk of loss or damage. They stressed that the
requirement that they use and operate their own distribution equipment
to deliver the products is a barrier to their ability to compete fairly
with other suppliers of bulk items.
    Recognizing that a DBE with a distributorship agreement typically
has more control regarding the quality of materials and bears
significant risk, the Department proposes to add language to Sec.
26.55(e)(3) to allow materials or supplies purchased from a DBE
distributor that neither maintains sufficient inventory nor uses its
own distribution equipment for the products in question to receive
credit for 40 percent of the cost of materials, including
transportation costs.
    In this section, a DBE distributor is defined as an established
business that engages in the regular sale or lease of the general
character of items specified by the contract and described under a
valid distributorship agreement. This section further explains that a
DBE distributor performs a CUF, entitling it to 40 percent credit, when
it operates in accordance with the terms of its distributorship
agreement; and with respect to shipping, the DBE distributor must
assume the risk for lost or damaged goods. The Department proposes that
recipients must review the language in distributorship agreements,
prior to contract award, to determine their validity relevant to each
purchase order/subcontract and the risk assumed by the DBE. Where the
DBE distributor drop-ships materials without assuming risk, or
otherwise does not operate in accordance with its distributorship
agreement, credit is limited to fees or commissions.
    Stakeholders also expressed concern regarding how to credit
supplies from a DBE regular dealer that provides the major portion of
items under the contract from its inventory, but must provide
additional quantities ``of the general character'' of those kept and
regularly sold, from other sources. The Department believes it places
an undue burden on recipients to segregate minor quantities of an order
delivered by sources other than the DBE, to eliminate them from regular
dealer credit (60 percent). The Department proposes to clarify in Sec.
26.55(e)(2)(iv)(A) that 60 percent credit of the cost of materials or
supplies (including transportation costs) is appropriate when all, or
the major portion, of the supplies under a purchase order or
subcontract are provided from the DBE's inventory, and when necessary,
any additional minor quantities, of the ``general character'' as those
kept and regularly sold, are delivered from other sources (e.g., the
manufacturer). The Department proposes that the recipient's system
mentioned above should include a means to evaluate at the commitment
stage, prior to contract award, the type and quantity of items the DBE
intends to have delivered by other sources.

Negotiating the Price of Supplies

    The Department made clear that to receive credit for supplying
materials, a DBE must demonstrate ownership by negotiating the price of
supplies, determining quantity and quality, ordering the materials, and
paying for the materials itself. Some DBE suppliers conveyed that they
are unable to compete with those prices negotiated by larger companies
with established relationships with manufacturers, or who purchase
supplies regionally in bulk; and that this scenario is a barrier for
DBEs to fairly compete. They asked us to consider eliminating the need
to negotiate price for certain bulk items, and still allow 60 percent
goal credit. We considered this request but ultimately do not support
it. The Department reaffirms the following statement set forth in
official guidance posted on May 24, 2012:

    The Department understands that there may be some kinds of
transactions in which no subcontractor performs all of the four
required functions (e.g., a prime contractor decides who will supply
a commodity and at what price, with the result that a subcontractor
cannot negotiate the price for the item). In such situations, the
way the transaction occurs does not lend itself to the performance
of a CUF by a DBE subcontractor, and it is not appropriate to award
DBE credit for the acquisition of the commodity by the DBE
subcontractor. All the DBE has done with respect to acquiring the
commodity is to carry out, in a ministerial manner, a decision made
by the prime contractor.\12\
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    \12\ Official FAQs on DBE Program Regulations--Commercially
Useful Function https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/dbe-guidance/official-faqs-dbe-program-regulations-49-cfr-26#Commercially.

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DBE Manufacturers

    The Department has learned from the OAs that the definition of a
DBE manufacturer should be clarified to assist recipients in evaluating
whether a DBE is a manufacturer, allowing 100 percent credit of the
cost of supplies and materials it manufactures toward a contract goal
(and a recipient's overall goal). In response, we propose revising
Sec.  26.55(e)(1) to clarify the meaning of the term ``manufacturer.''
A DBE is a manufacturer if it owns or leases and operates a factory or
establishment that produces the materials, supplies, articles, or
equipment required under the contract. Manufacturing also includes
blending or modifying raw materials or assembling components to create
the product to meet contract specifications. A DBE does not meet the
definition of a manufacturer, however, when it makes minor
modifications to the materials, supplies, articles, or equipment.

Suppliers of Specialty Items

    The Department proposes a new provision at Sec.  26.55(e)(2)(iv)(C)
to address a common scenario in which a DBE supplies items that are not
typically stocked due to their unique characteristics (e.g., limited
shelf life, or specialty items requested by contractors on an ad hoc
basis). We consider a DBE supplier that operates in this manner as a
regular dealer of bulk items that can receive 60 percent credit for the
items only if it owns and operates its own distribution equipment. We
propose that the recipient include in its pre-award system procedures
to determine whether the DBE supplier of such items will operate its
own distribution equipment in order to be entitled to 60 percent
credit.

Subpart D--Certification Standards

11. General Certification Rules (Sec.  26.63)

    To begin, we propose changing ``recipient'' to ``certifier''
throughout subparts D and E because firms often do not know that
``recipient'' refers to ``certifier.''
    Currently, Sec.  26.73 is a catch-all section that mostly provides
broad certification requirements. The overall objective of the proposed
revisions is to create more succinct and clearer paragraphs for rules.
For this reason, we propose changing the title of this section from
``What are the other rules affecting certification?'' to ``General
Certification Rules;'' and redesignating Sec.  26.73 to Sec.  26.63.
These changes provide context to the certification rules that follow
and more accurately reflect the section's purpose.
    The proposal would restate and compile the rules discussed in
current paragraphs (a) through (d) and (f) through (g) into new
paragraph (a). The Department believes that the new paragraph (a) would
increase readability, making the rules more accessible to the general
public.
    The most notable change in proposed Sec.  26.63(b) pertains to
firm's owned and controlled by a parent or holding company. The current
Sec.  26.73(e) states that a DBE must be owned by individuals and not
another firm. However, Sec.  26.73(e)(1) provides an exception to the
general rule and states that ``if socially and economically
disadvantaged individuals own and control a firm through a parent or
holding company, established for tax, capitalization, or other purposes
consistent with industry practice, and the parent or holding company in
turn owns and controls an operating subsidiary, you may certify the
subsidiary if it otherwise meets all [other certification]
requirements.'' Sec.  26.73(e)(1).
    Because the text of current Sec.  26.73(e) does not clearly define
``parent,'' ``holding company,'' or ``tax, capitalization or other
purposes,'' the ambiguity created by these terms makes the entire
provision difficult to apply. The Department interprets the exception
to the general rule to allow a DBE to be owned by another firm so long
as the parent or holding company is owned and controlled by
disadvantaged individuals. The proposal takes this approach. As we
acknowledged in the 1999 preamble when we issued the rule, ``[t]he
purpose of the DBE Program is to help create a level playing field for
DBEs. It would be inconsistent with the program's intent to deny DBEs a
financial tool that is generally available to other businesses.'' (64
FR 5096, 5120 (Feb. 2, 1999))
    Contrary to the goal stated in the preamble, the ``general rule''
in Sec.  26.73(e) unduly excludes the disadvantaged owner from
indirectly owning a firm through another entity--a flexibility that is
available to non-DBEs. This restriction arguably puts the DBE at a
competitive disadvantage with its non-disadvantaged competitors.
    We are aware that the more complex a firm's ownership structure is,
the more difficult it is for the certifier to assess its eligibility.
Our proposal would permit only one tier of ownership above the
subsidiary DBE. No firm would be certified based on ownership of a
business, control on the grandparent level (i.e., a DBE cannot be 51
percent owned by firm B, which is 51 percent owned by firm C, which is
owned by the disadvantaged owner).
    Also, the firm would still be required to meet all other
certification requirements, including the PNW limit and business size
standard, which may create eligibility issues related to the outside
business interests and affiliation counting rules. The firm's refusal
to provide pertinent information about its parent or holding company
would be grounds for denial or decertification for failure to
cooperate.
    The proposal also makes technical corrections to the portions of
the section concerning Indian tribes and Alaska Native Corporations.
    Overall, proposed Sec.  26.63 simplifies and removes ambiguous
language that exists within the current rule. It preserves common
business practices while securing program integrity.

12. Business Size (Sec. Sec.  26.65, 23.33)

    Size standards in the DBE and 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
participation in the DBE and ACDBE Programs is not necessarily of
indefinite duration: if a firm grows to exceed the applicable size
standard, it ceases to be eligible for the applicable Program. The size
standards are calibrated to help meet the objectives of the Programs,
including permitting ACDBEs to compete in the transportation and
airport concessions markets.
    To be classified as a small business under the DBE Program, a
business's gross receipts (including those of its affiliates) must
satisfy two size standards. Per Sec.  26.71(n), DBEs must meet a size
limit for each North American Industry Classification System (NAICS)
code corresponding to the firm's work. The size standard represents the
highest amount of receipts a firm can have to be considered small. For
example, an architecture firm, assigned NAICS Code 541310, cannot
exceed $11 million in average annual gross receipts (SBA's size limit
for NAICS Code 541310) and still be considered small. DBEs must also
meet a secondary size standard prescribed in the Department's surface
reauthorization legislation, known as the statutory or secondary gross
receipts cap. This provision is currently implemented through Sec.
26.65(b) and (c), and to qualify as a DBE, a firm cannot exceed the
size cap prescribed by this regulation. The NAICS code standard cap is
expressed in either millions of dollars or number of employees whereas
the statutory gross receipts cap is

measured in average annual gross receipts.
    The Federal Aviation Administration (FAA) Reauthorization Act of
2018 (Pub. L. 115-254) removed the secondary gross receipts cap under
Sec.  26.65(b) for purposes of eligibility for FAA-assisted work.
Therefore, the revised rule published on December 14, 2020, reflects
that the secondary gross receipts cap of Sec.  26.65(b) and (c) does
not apply for purposes of determining a firm's eligibility for FAA-
assisted work.\13\
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    \13\ See 85 FR 80646 (Dec. 14, 2020) available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/december-14-2020-final-rule-gross-receipts.
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    Size limits are similarly placed on ACDBEs and firms applying for
ACDBE certification, but under Sec.  23.33, these are not currently
aligned with the SBA limits based on individual NAICS codes. Section
(a) of the current provision requires recipients to treat a firm as a
small business eligible to be certified as an ACDBE if its gross
receipts, averaged over the firm's previous 3 fiscal years does not
exceed $56.42 million. Unique types of businesses have size standards
that differ--Banks and financial institutions; car rental companies;
pay telephone companies; and automobile dealers.

Changing the Measurement for the NAICS Code Size Calculations From 3 to
5 Years

    Section 1101(e)(3) of the BIL states that for purposes of the DBE
Program's definition of a small business, the term is defined as used
in section 3 of the Small Business Act (15 U.S.C. 632). The Small
Business Runway Extension Act of 2018 (SBREA) (Pub. L. 115-324) amended
Section 3 of the Small Business Act, which in turn changed the method
used by the SBA to calculate business size under 13 CFR part 121. The
SBA implemented this change on January 6, 2020, through a final
rule.\14\ This rule changed the time period for calculating average
annual gross receipts under 13 CFR part 121 from 3 years to 5 years but
provided firms with the option to use either the 3-year calculation or
the 5-year calculation until the 5-year period became mandatory on
January 6, 2022.
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    \14\ See 84 FR 66561 (Dec. 5, 2019) available at https://www.federalregister.gov/documents/2019/12/05/2019-26041/small-business-size-standards-calculation-of-annual-average-receipts.
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    The SBA final rule applies to FHWA, FTA, and FAA-assisted projects
because the DBE regulation requires recipients to use the current SBA
business size standard(s) found in the SBA regulation. On October 19,
2020, the Department issued guidance stating that until January 6,
2022, DBEs participating in FHWA, FTA, and FAA-assisted projects may
choose between using a 3-year averaging period or a 5-year averaging
period for the purposes of meeting the requirements of the DBE Program,
as described in Sec.  26.65(a), and after that date, the 5-year
averaging period would become mandatory.\15\
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    \15\ See ``DBE/ACDBE Size Standards'' at https://www.transportation.gov/DBEsizestandards.
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    The Department proposes to incorporate the 5-year calculation
changes in Sec.  26.65(a) to meet these statutory requirements. Under
the proposed additional language, a firm would be eligible as a DBE in
any Federal fiscal year if the firm (including its affiliates) has had
average annual gross receipts, as defined by the SBA regulation at 13
CFR 121.104, over the firm's previous five fiscal years.

Statutory Gross Receipts Cap

    For the statutory DOT size cap found at Sec.  26.65(b), DBEs are
still subject to the 3-year averaging period because this 3-year period
is specifically prescribed by the BIL. Therefore, while a DBE firm may
elect to submit its average annual gross receipts for either the last 3
years or last 5 years to show it meets the size standard for a NAICS
code under 13 CFR part 121, only the last 3 years may be considered for
determining whether the firm also meets the DOT size standard
prescribed by Sec.  26.65(b).

Future Adjustments and Technical Amendments

    In December 2020, the Department removed the requirement from part
26 to publish a Federal Register document informing the public of
inflationary adjustments. In this proposed rulemaking, the Department
will make a similar change to part 23 and will strike this language
from paragraph (c) of Sec.  23.33. Like Sec.  26.65(c), the proposed
Sec.  23.33(c) language states that the Departmental Office of Civil
Rights will publish the annually adjusted number on its web page.\16\
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    \16\ See https://www.transportation.gov/DBEsizestandards.
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    We propose adding the word ``passenger'' to car rental companies,
replacing ``automobile dealer'' with ``new car dealer,'' and remove
reference to pay telephone operators. The size standards for these
types of firms (with the proposed new titles) will remain the same,
i.e., $1 billion in assets for banks and financial institutions; $75.23
million average annual gross receipts from passenger car rental
companies' 5 previous fiscal years; and 350 employees for new car
dealers.
    We also propose removing the regulatory requirement for the
Department to adjust the ACDBE size standards every two years. The
Department last adjusted the ACDBE size standards in June 2012. We seek
comments on whether any inflationary adjustment to the ACDBE size
standards is needed at this time. The standards far exceed the SBA
small business size limits placed on these types of businesses, and any
adjustment must be made in recognition of the overall intent to
narrowly tailor all program requirements. We are contemplating whether
there is a need to further raise the current size standards,
particularly given that we propose changing the period of measurement
under Sec.  23.33 from 3 to 5 years. It is the Department's view that
raising the standards too high could result in smaller firms seeking to
enter the concession industry having to compete with larger firms for
space that is already limited in opportunities because of limited
airport opportunities.
    The Department seeks data on whether the additional categories with
different size standards, like car rental companies, are still needed
and if the size standards applicable to these categories require an
adjustment. If proponents advise that an adjustment is needed, should
the Department again use an inflation rate tied to purchases by state
and local governments as it does in part 26 adjustments? We currently
use data from the Department of Commerce's Bureau of Economic Analysis
(BEA). The BEA measures constant dollar estimates of state and local
government purchases of goods and services by deflating current dollar
estimates by suitable price indexes. These indexes include purchases of
durable and non-durable goods, and other services.

Gross Receipts of ACDBE Affiliates and Joint Venture Partners

    The Department is proposing to address how an ACDBE must account
for annual gross receipts of affiliates and joint ventures for size
purposes, as provided in 13 CFR 121.104(d) and Sec.  121.103(h)(3) of
the SBA regulations, respectively. The Department will add a new
paragraph (d) to Sec.  23.33, making clear that an ACDBE that is a
party to a joint venture must include in its gross receipts its
proportionate share of receipts generated by the joint venture.

13. Personal Net Worth (PNW) Adjustment

    Section 26.67(a)(1) provides a presumption of social and economic
disadvantage for citizens (or lawfully admitted permanent residents)
who are

women, Black Americans, Hispanic Americans, Native Americans, Asian-
Pacific Americans, Subcontinent Asian Americans, or other minorities
found to be disadvantaged by the SBA. However, individuals who belong
to a group(s) whose members are presumed socially and economically
disadvantaged (SED) could be too wealthy to be considered economically
disadvantaged for purposes of the DBE Program. As a mechanism for
excluding those individuals from the DBE Program, in 1999, the
Department adopted a PNW cap of $750,000. A PNW cap means that,
regardless of membership in a group whose members are presumed SED, any
individual whose PNW exceeds the PNW cap is not considered economically
disadvantaged. This helps ensure that the DBE Program is narrowly
tailored and that only those individuals who are actually economically
disadvantaged are eligible for the DBE Program.
    The Department's 2011 final rule raised the PNW limit from $750,000
to $1.32 million to keep up with inflation.\17\ The Department now
proposes raising the limit to $1,600,000 ($1.60 million) for the DBE
and ACDBE Programs, based on a number of factors. In addition, the
Department proposes establishing a method for adjusting the PNW cap in
the future that would allow the DBE and ACDBE Programs to adjust the
PNW cap in a timely and responsive manner while avoiding the delay and
the administrative burden of a formal rulemaking.
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    \17\ The $750,000 PNW cap was adjusted using the CPI from the
base year of 1989. As explained in previous rulemakings, 1989 was
used as the base year because this was the year the Small Business
Administration initially proposed the $750,000 PNW cap. See January
2011 final rule, available at https://www.transportation.gov/civil-rights/disadvantaged-business-enterprise/dbe-laws-policy-and-guidance.
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    The DBE Program adjusts the traditional definition of total
personal net worth by excluding the disadvantaged owner's interest in
the firm in question, equity in the owner's primary residence, and 50
percent of any assets held as community property with a spouse or
domestic partner. The existence of a PNW cap highlights a tension
between the DBE Program's multiple objectives. If the PNW cap is set
too high, the program would include business owners who are not in fact
economically disadvantaged. If the PNW cap is set too low, the program
will exclude some truly disadvantaged business owners who could benefit
from participating in the program and whose participation would advance
the program's progress towards achieving equity in Federal contracting.
A 2007 report commissioned by the Congressional Black Caucus
Foundation, ``Increasing the Capacity of the Nation's Small
Disadvantaged Businesses,'' points out that businesses need resources
to build capacity and be competitive, thus a PNW cap that is too low
will limit the success of participating businesses.
    In 2019, the Federal Aviation Administration (FAA) conducted
listening sessions related to this rulemaking. Commenters noted that
the current $1.32 million PNW cap hinders the success of the ACDBE
Program. They noted that restaurants in airports can have very high
upfront financing needs related to build-out costs, covering initial
operating costs, and the need to refresh their facilities midway
through a typical 7 to 10-year lease. In addition, because of the
nature of those types of expenses (and possibly the risk inherent with
the airport concession industry), banks require a high amount of
collateral for loans to finance those upfront expenses.\18\
Consequently, a PNW cap that is too low means that the business owners
who have the means to provide the collateral for airport concessions
with high upfront investment requirements are generally not eligible to
participate in the ACDBE Program. Note, however, that the business
owner's total household net worth can be used as collateral for a loan,
so that while the PNW as defined by the program must be below the
rule's cap, the amount available to use as collateral might be higher
than the cap due to how PNW is calculated for the DBE and ACDBE
Programs.
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    \18\ Fed. Aviation Admin., ``49 CFR Part 23 Review Virtual
Virtual Listening Session Subpart C'' (Apr. 4, 2019).
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Rationale for $1.60 Million Adjustment

    As part of this proposed rulemaking, the Department conducted an
original analysis to establish an appropriate PNW cap. We recognize
that the determination of economic disadvantage is a comparative
exercise, not an absolute determination made in isolation.\19\ In this
analysis, the determination of an economically disadvantaged business