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July 20, 2006 Web Conference
DBE Program Administration
Questions and Answers – Chat Room
Question 1: Please clarify. Did you say that a DBE plan is not required unless there are changes?
Answer: In the context of this question, we would state that, first, a DBE program plan already exists and has been approved by one of the operating administrations, i.e., FHWA. Under §26.21, a regular update is not required as long as the recipient remains in compliance with its DBE program. An update may be required if, for example, USDOT has issued new regulations and/or guidance that would require a significant change to a recipient’s DBE program as approved. FHWA has held through its annual DBE Goal Setting Approval Process and DBE Program Plans (last dated 9/14/06) guidance a significant change is any change that is likely to affect an important aspect of the DBE program if implemented.
References: 49 CFR §26.21; Office of Small and Disadvantaged Business Utilization’s website OSDBU.DOT.GOV;
FHWA Memorandum dated 09/14/06
Question 2: So, an updated plan must be submitted for each year there is a change in the DBE goal?
Answer: If the recipient’s goal setting methodology used to establish each fiscal year's DBE program overall goal is incorporated into the recipient’s DBE program plan then the plan would need to be updated each year. However, since there is no specific requirement that the annual goal setting methodology used in establishing a specific fiscal year goal must be part of the DBE program plan, it has been accepted that the DBE program plan could provide a general explanation of the recipient’s goal setting process and methodology. The methodology and actual calculation in establishing the annual overall program goal could be spelled out in a separate document. And, that would be the document submitted to the lead agency for appropriate action.
References: 49 CFR §26.21; §26.45; Goal Setting Methodology memorandum on FHWA website
Question 3: Has the Department of Transportation issued any waivers to any part of the DBE regulations to anyone?
Answer: Yes, USDOT has approved waivers over the years requested from different recipients over the life of the DBE program. But no waiver is currently in effect for any STA program since those previously granted are now part of the current program through recent rule changes issued by USDOT.
Question 4: I was told that an annual DBE Plan is required. Please help me to understand better by clarifying the meaning of significant changes with regards to DBE Plan and/or updates. Also, is legal sufficiency required?
Answer: As referenced in the answer to question 1, the DBE program plan once approved by the lead federal agency remains in effect until such time a significant change is made to that program plan. When it becomes necessary to revise the program plan, it is to submit the revised program plan to the lead agency for approval. The definition of significant change is that as described in the answer to question one.
FHWA’s DBE Goal Setting Approval Process and DBE Program Plans annual guidance memorandum (dated 9/14/06) requires a revised program if a significant change is to be submitted to Washington, DC for concurrence before the Division Office approval. This may involve coordination with other FHWA offices (i.e., Office of Chief Counsel) and USDOT, as appropriate. This coordination does not necessarily constitute a legal sufficiency review as in the same context as that required in processing the recipient’s goal setting methodology.
Reference: 49 CFR §26.21
Question 5: Can the Annual goal deadline be permanently changed to another date?
Answer: No, even if extensions may have been granted in previous years, it is not the intent to waive the requirements of §26.45(f) (1). Since the program operates on a fiscal year basis (i.e. §26.45(e) (1) consistent with the appropriation of federal-aid highway funds, it is the intent to have the DBE program annual overall goal established and in effect as of October 1, of each fiscal year.
References: 49 CFR §26.45 (f) (1); §26.45 (e) (1)
Question 6: When States submit their goal setting process to FHWA should we wait until we also receive the public comments?
Answer: This question raises two possibilities to be addressed. In waiting, could refer to FHWA rendering its approval action of the goal setting methodology or waiting for processing the STA’s actual submission. As it has occurred many times under the regulations, a STA is required to have public participation in its goal setting process. The second element of public participation involves the STA publishing its methodology for public comment. Because of the tight timeframe for meeting the October 1, decision date, often the goal setting methodology is submitted to FHWA for handling while, concurrently, the public notice seeking comment is issued. It has been considered acceptable to continue processing the STA’s submission while the 45 day public comment period runs its course but no final approval action by FHWA is to take place until the comment period has expired. The STA compiles and reports the comments received to FHWA and the comments received do not require any substantive revision to the already submitted goal setting methodology.
References: 49 CFR §26.45 (f) (1); §26.45 (g) (2)
Question 7: What are typical penalties that States have implemented?
Answer: Some of the typical administrative actions that have been used include but are not limited to the following:
i. Withholding progress payments
ii. Withholding payments equal to the amount of DBE participation shortfall
iii. Suspension of bidding privileges
iv. Suspension and debarment
v. Reducing/lowering prequalification limits
vi. Cancellation of contract
vii. Referral for criminal prosecution
Reference: 49 CFR §26.107
Question 8: What about DBE’s subbing to a non-DBE?
Answer: The counting rules under §26.55 apply when participation by a DBE firm is credited towards meeting a goal. The only counting allowed is when the DBE firm actually performs the work themselves. This rule does not prevent a DBE to subcontract its work to a non-DBE subject to the State’s subcontracting limitations set forth in the contract. But, by doing so, only that portion of the contract actually performed by the DBE is counted.
Reference: 49 CFR §26.55
Question 9: How many tiers down must a SHA account for the DBE’s participation?
Answer: Consistent with the answer given to question 8 above, all work at any tier actually performed by a DBE is counted towards meeting the goal subject to the subcontracting limitations set forth in the State’s contract.
Question 10: Don’t you have to get OA approval for one for one truck counting?
Answer: The USDOT in its 2003 final rule under revised subpart §26.55 allowed the use of a new truck counting approach at the discretion of a recipient to adopt subject to the approval by the appropriate Operation Administration (i.e., FHWA).
Reference: 49 CFR §26.55 (d) (5)
Question 11: Isn’t it a 30% requirement not 50%? See 26.559© (3) or did I misunderstand what you said?
Answer: The FHWA does have a policy, 23 CFR §635.116, that the 30 percent of the contract work is to be performed by the prime contractor. There is no similar policy that carries forth this policy to subcontracting. With respect to 30% versus 50%, many States choose to keep the more restrictive percentage than to adopt the 30% limitation. A recipient can adopt a more stringent requirement and be consistent with federal laws and regulations. If the 30% limitation cited in §26.55(c) (3) is particular to the DBE program because the largest majority of DBEs perform at the subcontract level and 23 CFR §635 only applies to prime contractors. The 30% rule is one way to assess whether in such situations a DBE is performing a Commercially Useful Function consistent with all that required under §26.55.
References: 23 CFR §635.116; 49 CFR §26.55 (c) (3)
Question 12: Can you discuss the “general character” as it applies to a regular dealer as described in §26.55 (2) (ii)?
Answer: The use of the phrase “general character” is not necessarily a new one but one that first appeared when USDOT issued its Supplemental Notice of Proposed Rulemaking (SNPRM) back in 1997. This proposed rule was the basis for drafting the 1999 final rule issued on February 2. In all of this process, the USDOT did not really define clearly the use of this phrase. Maybe a way to help define it though is to go back to a 1992 Notice of Proposed Rule Making to see what wording was used under this subpart. It references, to be a regular dealer one must deal with “materials or supplies required for the performance of the contract are bought, etc.” This qualification has essentially been the general rule in place since 1980 where only services required by a DOT-assisted contract are eligible for credit.
Reference: 49 CFR §26.55
Question 13: With material supplying, please describe how standard industry practices come into play. Specifically with a pipe supplier who receives a contract to supply an extremely large quantity of pipe? The standard industry practice for non DBE contractors is to drop ship?
Answer: The rules for determining whether a DBE firm is performing as a regular dealer under the DBE program are specifically detailed under §26.55(e) (2). This determination is also made consistent with the over arching provisions of §26.55 concerning performing a CUF in light of a number of factors including industry practice. It is for this reason that it is important to determine what is the industry practice for each and every conceivable possibility of a DBE firm performing on a federally assisted contract. The intent is to assess whether, one; there is actually an industry practice that exists outside of the DBE program and, two, when such industry practice exists whether the DBE is performing as non-DBEs in this industry. The general rule applied in such instances is industry practice is one consideration if such practices are not in conflict or act contrary to the requirements (i.e., control and independence) of the DBE program. In the example given with respect to pipe, it may be conceivable that the supply of concrete pipe, for instance, could, based on industry practice and being consistent with the DBE program that dependent on the size of the pipe and/or quantity, that an inventory (i.e., 18 and 24 “) might be required while the delivery of a contract specified size (i.e., 72”) might be by direct shipment from the casting yard to the project site. The delivery would then be the consideration in whether the DBE firm performs a CUF in consideration of industry practice. As a hypothetical, if no suppliers in a state provides the distribution equipment for hauling 72” pipe from the yard to the job site then should a DBE consistent with the spirit, intent or requirements of the DBE program?
Reference: 49 CFR §26.55 (e) (2)
Question 14: Could general character mean up to spec or acceptably equivalent?
Answer: It is considered that the response given to question 12 adequately speaks to this question.
Question 15: Commercially useful function needs to be discussed further when counting participation for procurement assistance by other than a regular dealer.
Answer: 49 CFR §26.55(e) effectively deals with DBE firms performing other kinds of services that do not fit into the categories of contractors, manufacturers and regular dealers. In such cases, the rule also speaks to the counting of such participation towards meeting the goal. If further clarification is also sought towards performing a CUF with respect to materials and supplies used on the contract, then the appropriate citation is §26.55(c) (1).
References: 49 CFR §26.55 (e); §26.55 ( c )(1)
Question 16: What can a SHA do when a given DBE performs less than 30 percent of its contract work and the remaining work has been done by a subcontractor who becomes part of the prime contractor’s certified payroll?
Answer: Consistent with the intent of §26.55(a) (1-3) and §26.55(c), the only work that can be counted towards meeting the goal is that actually performed by the DBE. In doing so the DBE must have performed the work themselves with their own resources including its own workforce. Such red flags of performing less than 30%; subcontracting a greater portion than normally expected; and/or the workforce showing up on the prime’s payroll before or after, are potential examples of failure to perform a CUF.
References: 49 CFR §26.55 (a) (1-3); §26.55( c )
Question 17: Can DBE credit be counted for procurement assistance by a DBE if the materials are not part of the DBE’s specialty?
Answer: Consistent with the intent of the provisions of §26.55, work actually performed by a DBE can be counted towards the goal. It would seem by this scenario that if the procurement assistance is by another certified DBE then this definition has been met. It becomes a CUF issue whenever a DBE is limited to that of being an extra participant in a transaction, contract or project to that role played by a non-DBE firm.
Reference: 49 CFR §26.55
Question 18: FHWA/HQ/RC need to clarify industry practice in regards to drop shipments with DOT’s OIG, my experience with the OIG is they do not look into industry practice.
Answer: This is not presented in the form of a question so not sure whether a response is necessary. It is others experience that the OIG is very interested in at least knowing what the industry practice is to better understand the issues they may face when looking at the facts of a case under investigation for fraud.
Question 19: Can you elaborate a little on post-award changes in DBE participation i.e. change in project scope where work items are eliminated, or there are problems where the DBE can’t or won’t complete the work?
Answer: Under §26.53, as a condition of award to a prime contractor, the contractor has adequately documented, in the form of commitment, its use of those DBEs named, at the dollar amount quoted and for the work identified in the commitment. If there is any change during the life of the contract resulting in less or more work, the prime contractor in consultation with the STA and subject to the consent of the STA must undertake a Good Faith Effort (GFE) to meet its commitment as a condition of award.
The substitution and replacement rule under §26. 53(f)(1-2) applies whenever a DBE firm committed to by the prime as a condition of award is either unwilling or unable to perform the work. If there is a need to replace a DBE firm the prime contractor is to carry out Good Faith Efforts to find a replacement. In doing so if the prime contractor is unable to find a replacement, then the State in response to a GFE submission can approve the new commitment.
References: 49 CFR §26.53; §26.53(f) (1-2)
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