2018 AASHTO Civil Rights Conference DBE Program Overall Goal Methodologies FHWA Office of Civil Rights Martha Kenley National DBE Program Manger

Learning Objectives Purpose of Overall Goal Goal Methodology Basics Step One – Base Figure Step Two – Adjustments Pubic Participation Accountability Requirements Common Misunderstandings

Overall DBE Goal - Purpose FHWA: Each State DOT must establish an overall DBE goal to Division Office every 3 years according to schedule Different goals for FHWA, FTA, and FAA

Overall DBE Goal - Purpose The overall goal is expressed as a percentage of a recipient’s federal- aid funds Calculated by determining the relative availability of DBEs as compared to all prime and subcontractors The percentage represents the disparity between the current percentage of DBE participation on transportation projects and the percentage of DBE participation that would be expected absent the effects of current and past discrimination 26 CFR §26.45(b)

Purpose DBE Program is a program to address discriminatory practices in the nation’s transportation-related industry Goal is determined by data FHWA is concerned with methodology not ultimate percentage if supported by methodology

Overall DBE Goal Goal must be based on demonstrable evidence of availability of ready, willing, and able DBEs relative to ALL businesses ready, willing and able to participate on DOT-assisted contracts 26 CFR §26.45(b) Goal data must include both construction and professional services

“Ready, Willing, and Able” Firms that perform in those transportation-related work codes in a State DOT’s relevant geographic market area NOT just firms that are prequalified to do work in your state. Not just firms that have previously performed work in your state

Overall DBE Goal - Basics To guide in the goal-setting process Recipients are expected to follow USDOT’s “Tips for Goal-Setting in the DBE Program” https://www.transportation.gov/sites/dot.gov/files/docs/Tips_for_Goal Setting_in_DBE_Program_20141106.pdf Operating Administrations (OAs) reviewing goals are instructed to follow the above guidance 49 CFR §26.45(f)(v)(4)

Overall DBE Goal – Step One Identify Method Selected Bidder’s List Census Data + DBE Directory Disparity Study Use Goal of Other DOT Recipient Alternate Method 49 CFR §26.45 (c) “Other DOT recipient”—typically an FTA grantee In 2014, there was a reg change or guidance that states use of a list of prequalified contractors or plan holders is not an acceptable alternative means of determining the availability of DBEs, i.e., not a good proxy for who may bid on contracts. If Alternate Method must be based on demonstrable evidence of local market conditions and designed to attain a goal rationally related to the relative availability of DBEs in market area. If your State has a disparity study but does not use it as the selected method, explain why not. Apples to apples – data types must be same for numerator and denominator.

Overall DBE Goal – Step One The exclusive use of a list of prequalified contractors or plan holders is not an acceptable alternative means of determining the availability of DBEs 49 CFR §26.45(c)(5) Prequalified lists must be supplemented with census (American Fact Finder) data AND firms that do not need to be prequalified in some states: haulers, suppliers

Overall DBE Goal – Step One Bidders List Method 49 CFR §26.45(c)(2): Acceptable only if you have a method of collecting data on: ALL businesses, successful AND unsuccessful, that have bid or quoted on prime or subcontracts ALL DBE and non-DBE subcontractors that submitted bids or quotes to primes Include how this information is collected If State uses the bidder’s list method

Census & DBE Directory = Base Figure Determine number of transportation-related DBEs from DBE Directory (Identified by appropriate NAICS Codes) Use Census Bureau County Business Pattern database or American Fact Finder to determine number of transportation-related businesses available in your market area performing work in same NAICS codes AND DBEs from Directory. Do not count DBEs from Census and Directory twice = Base Figure Use NAICS codes most appropriate to your dot-assisted contracts.

Overall DBE Goal – Step One If you use Census & DBE Directory Tips on Goal Setting encourages adding minority and women-owned firms that could be eligible for DBE certification Survey of businesses through custom census—filtered by business size/type Survey of unsuccessful subcontractors on bidder’s list if not identified as DBEs MBEs and WBEs in State programs

Overall DBE Goal – Step One A disparity study typically yields best data available If you have conducted a disparity study in market area and choose another method, explain why

Overall DBE Goal - Basics Explain: Why methodology chosen yields best data available? What were data sources and why are they reliable? How was data collected? Types of data: -Contract Management Databases -Contractor Forms STA must have confidence in all data—where lack of confidence, STA shouldn’t use but must explain.

Overall DBE Goal – Step One Determine Relevant Geographic Market Area (GMA): Geographic distribution of contractors and subcontractors working on Federally-assisted contracts and dollars spent in those areas Substantial majority of dollars (75%+) Note: relevant Market Area may not be State geographic boundaries From beginning to end, this is a show-your-work exercise. If the majority of your State DOT’s prime and subcontractors are located in State, then the relevant market area would be the boundaries of the State. In smaller states, the GMA more likely to encompass counties beyond state boundaries. Projects done in conjunction with other states.

Overall DBE Goal – Step One Example: Dollars to In-State Contractors Total Dollars Representative State Percentage Geographic Distribution of Participating Prime Contractors $727,048,359 $779,140,546 93.31% Geographic Distribution of Participating Subcontractors $113,513,436 $151,557,115 74.91% Total State Market % $840,561,795 $930,697,661 90.32% Because the dollars spent on prime and subcontractors in the state GMA account for 90.32% of the total dollars spent, the GMA of the state boundaries can be used. Typically, the threshold is 75%. If under threshhold, consider adding areas within neighboring States to your GMA

Overall DBE Goal – Step One Base Figure represents the relative availability of DBEs in relevant geographic market area (GMA) Number of Ready, Willing and Able DBEs _______________________ = Base Figure % Number of All Firms Ready, Willing & Able

Overall DBE Goal – Step One Bidders List Example: 10 DBEs bid or quoted on prime or subcontracts ___________________ = 10.00 % Base Figure 100 Total Firms bid or quoted on prime or subcontracts Start of an example we’ll use throughout this presentation.

Overall DBE Goal – Step One Weighting by Work Type If you have the data, do weighting Provides a more narrowly-tailored model of availability Weights used are proportion of dollars spent within each work type Resulting percentage shows work types in which more dollars are spent May use NAICS, internal work codes, etc. Availability, not capacity. Weighting by prime and subcontractors not appropriate -Would be dividing up by capacity—capacity is a consideration for adjustments, not Base Figure. Make sure to do “apples to apples” with work codes. I.e.: Don’t mix NAICS with internal codes

Overall DBE Goal – Step One Decide which work types best represent your DOT-assisted contracts Tally the dollars spent in each work type category as a percentage of the total contract dollars spent Assign work types to each DBE and non-DBE firm Calculate relative availability of DBE vs. non-DBE in each work category Multiply relative availability with percentage dollars spent in each work category Do not double count if firm has more than one NAICS code Do not weigh by prime vs. sub

Overall DBE Goal – Step One Industry % of Dollars (weight) DBEs All Firms Weighted % Trucking 5.00% 1 18 0.28% Engineering/Design 17 0.29% Construction 90.00% 8 65 11.08% Total 100.00% 10 100 11.65% Without weighting, the Base Figure would be 10%. Construction accounts for the bulk of dollars spent, therefore, firms in that category are counted with more availability than in the other two work types. 1/18 = .055 .055 x ,.05=.277 or .28% 1/18 =.05 = .28% Weighting is apples to applies; it applies to DBEs and non-DBEs uniformly as a proportional representation of dollars spent.

Overall DBE Goal – Step Two Recipient must examine all available evidence and determine what adjustments, if any, are necessary It is not necessary to make a Step Two adjustment

Overall DBE Goal – Step Two Must consider median past DBE participation (MPP). Not Average! Use DBE participation data from past 5 years to demonstrate capacity (percentages) If MPP figure is very similar to Step One base figure, should not make any adjustment for past participation If past participation is disparately low compared to Base Figure, making a Step Two adjustment may perpetuate past discrimination Adjustments may be upward or downward

Total DBE Achieved (RC+RN) Overall DBE Goal – Step Two Median Past Participation Example: Tally total DBE achievement percentage for 5 years.   Total DBE Achieved (RC+RN) Total Contract Amt Total DBE % 2011 $750.00 $5,000.00 15.00% 2012 $480.00 $4,000.00 12.00% 2013 $200.00 $1,000.00 20.00% 2014 $240.00 $6,000.00 4.00% 2015 $360.00 6.00%

Overall DBE Goal – Step Two Choose median (not average) percentage: In this example, the base figure of 11.65% and the median base figure of 12% are close so no adjustment needed 2013 4.00% 2014 6.00% 2011 12.00% 2010 15.00% 2012 20.00% The median is the middle value. If you use an even number of years, then add the two middle values and divide by two. Here, the MPP and the Base Figure are very close. An adjustment not necessary.

Overall DBE Goal – Step Two Average MPP % with Base Figure %: BF (11.65%) + MPP (8.00%) Adjusted BF 2 = 9.82% A downward adjustment from 11.65% to 9.82% is allowed -- but consider whether it is appropriate If you are using a disparity study, MPP adjustment may have already been made

Overall DBE Goal – Step Two Consider Other Factors Information from disparity studies (if using disparity study method will likely already be considered in Step 1) Lack of access to financing/bonding Statistical employment data Other data affecting likely DBE participation—drastic changes in the economy Disparity study may have already taken data of this type into account

Step Two Adjustments No other step two adjustments are authorized Cannot make another step two adjustment to merely for purpose of lowering goal “Graduated DBEs” must be accounted for by removing these firms in Step 1

Overall DBE Goal – RC/RN Projections Race-Conscious – Race Neutral Projections Projections—not Goals! Must meet maximum feasible portion of annual goal through race-neutral means Recipient projects portion of goal it is likely to meet through efforts that are Race-conscious (contract goals) Race-neutral Not RC Goal and RN Goal. Must meet overall goal

Race Conscious/Race Neutral Race-Neutral Projection Example: Tally total RN DBE achievement percentage for 5 years.   Race-Neutral DBE Amt Total Contract Amt RN DBE % 2010 $100.00 $5,000.00 2.00% 2011 $200.00 $4,000.00 5.00% 2012 $30.00 $1,000.00 3.00% 2013 $420.00 $6,000.00 7.00% 2014 $300.00 Using the figures from the MPP example earlier, the median RN percentage is 5.0%. Therefore, this can be used to project that 5.0% of the Adjusted Base Figure will be met through RN measures. Race-Neutral means: DBE participation on contracts without goals DBE participation in excess of contract goals DBE participation as a prime: -Without contract goal or -With contract goal if the goal is met with DBE subcontractors

Overall DBE Goal – Other Elements Choose median RN percentage: 2010 2.00% 2012 3.00% 2011 5.00% 2014 2013 7.00% Apply to Adjusted Base Figure for final Goal: Adj. BF: 11.65% 6.65% Race-Conscious 5.00% Race-Neutral =

Annual DBE Goal – Public Participation Required: consultation with minority, women's and general contractor groups, community organizations, and other officials or organizations Must include a scheduled, direct, interactive exchange with as many stakeholders as possible to obtain information relevant to the goal setting process Consultation must be face to face and with individuals/entities likely to have interest and offer constructive feedback—meeting open to public encouraged Goal methodology must note which publications carried notice and which individuals/entities attended meeting.

Annual DBE Goal – Public Participation Stakeholder meetings must occur before you are required to submit your methodology to the OA Include comments received and whether or not they were considered Recipient may not implement the proposed goal until it has complied with this requirement

Annual DBE Goal – Public Participation Recipient must post a notice on its official website announcing the proposed overall goal before submitting its goal to the OA by the August 1st deadline It is no longer a requirement, but the Recipient may post the proposed goal in other sources (e.g., minority-focused media, trade association publications)

Overall DBE Goal – Public Participation It is no longer required, but the Recipient may make the proposed overall goal and its rationale available to the public for a 30-day comment period (change from 45-day) The public comment period will not extend the August 1st deadline for the Recipient to submit its goal to the OA

Approval Process Send Goal Methodology to Division Office by August 1st of Scheduled Year Division forwards to HCR and works with HCR to review HCR sends to Chief Counsel’s Office for legal sufficiency review Chief Counsel’s Office responds to the Division with memorandum of decision

Overall DBE Goal – OA Review OA reviews Recipient’s proposed overall goal and may adjust the goal or require the Recipient to adjust the goal if it believes the goal has not been correctly calculated or the methodology is inadequate Recipient may operate under proposed goal prior to OA approval 49 CFR 26.45 (f)(4)

Accountability Recipient that has not meet its overall DBE goal in any given year must submit written analysis to FHWA Division of why the goal was not met and corrective measures to be taken 49 CFR §26.47 (c)

Accountability Timeframe Recipient must submit detailed analysis and established corrective measures to OA within 90 days of end of fiscal year If OA approves, Recipient in compliance OA may give conditional approval, e.g., Modifications to overall goal methodology Changes to RC/RN projections Additional RC or RN measures

Accountability Recipient is in non-compliance if ANY of the following occur: Does not submit analysis and corrective actions to FHWA timely FHWA disapproves of analysis or corrective actions Does not fully implement corrective actions or FHWA’s imposed conditions for acceptance

Overall Goal Submittal Recipients must submit overall goal methodology to OA for approval every three years according to schedule Recipients must use good faith efforts to meet goal each year Not an average of 3 years!

Question Which is more important? A State meets its goal each year A State has a legally defensible methodology

Questions?