TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM Issues and Impacts of 2010 NPRM on USDOT DBE Program State DOTs’ Legal Perspective on Issues and Impact James S. Thiel, J.D. Chair, AASHTO Legal Affairs Counsel Wisconsin DOT 1

TRB 90 th Annual Meeting Session 264 USDOT 2010 NPRM Original Key USDOT Provisions Good Faith Efforts of Recipient States to Meet Overall Goals 26.47, Certification Requirements 26.71, 26.73, 26.83, Adjust Personal Net Worth Expedite Interstate Certification Foster Small Business Participation 26.39, Improve Post-Award Oversight 26.37,

TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM Good Faith & Race-Neutral Efforts 26.47(a) “You cannot be penalized, or treated by the Department as being in noncompliance with this rule, because your DBE participation falls short of your overall goal, unless you have failed to administer your program in good faith.” 26.51(a) You must meet the maximum feasible portion of your overall goal by using race-neutral means of facilitating DBE participation. 3

Proposed Rule Adds “Accountability” By Redefining “Good Faith” 26.47(c) Within 60 Days of “the end of the fiscal year” [1 DEC] Must “Analyze In Detail” any Negative Gap Between Overall Goal and Uniform Report “of Awards and Commitments” in that Fiscal Year. Must “Establish Specific Steps and Milestones” to Correct. TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM4

Accountability -- Continued 26.11(a) “You must transmit the Uniform Report of DBE Awards or Commitments and Payments, found in Appendix B to this part, at the intervals stated on the form.” JUN 1 and DEC 1 Analysis and Corrections Must Be Approved by Three Operating Administrations. Not Uniform. Can Impose Any Conditions – Methodology, Split, New Measures TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM5

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Accountability -- Continued TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM7

Accountability -- Continued TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM8

Good Faith Efforts - Continued Rules Should Distinguish Standard Federal Methodology States from Availability and Disparity Study States. Every State is Different Need to Recognize Aspirational Overall Goal’s Have A Margin of Error. Estimate versus Precision TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM9

Good Faith Efforts - Continued Need to Recognize Variable Overall Program Size and Program Content Adjustments Are the New Annual Justification [Analysis/Correction] Burdens Consistent with 3 Year Overall Goal Initiative? Is New Burden Consistent with the Requirement to Achieve the “maximum feasible portion of your overall goal by using race-neutral means”? TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM10

Good Faith Efforts - Continued Need to Reflect Uncertainty – Economy, Work Available, Program Funding Does Analysis Paperwork Requirement Encourage Lower Goals or Loose Reporting? As Proposed is Very Problematic for States, Unacceptable? Quota? Legally Suspect “On its Face” or “As Applied”? TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM11

Good Faith Efforts - Continued New York DOT Response: New Rule Supports the Notion that State DOTs Must Analyze Why Prime Contractors Cannot Meet Overall Goals. May Result in Increased Burdens on Industry. TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM12

Legal Consequences 9 th Circuit Decision. US Agreed Washington DOT Responsible for Setting Goal. If Federal Government Is Now to Review, Approve and Modify. Must US Now Defend Federal Goal. Other Circuits. Compliance with Federal Rule Methodology is Adequate. Need to Challenge Federal Rule. And Challenge Federal Goal? 13 TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM

Map.pdf Map.pdf TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM14

Legal Consequences -- Continued Increased Likelihood of Challenges Due to Different Dates of Review and Methodology by Three Different Operating Administrations? Application of Different Standards of Federal Review In Different States? Timeliness of Federal Review? Foreshadows Required Availability and Disparity Studies? Updated Every Year? TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM15

1. Close Loophole. Appendix E allows individual E to transfer personal assets to DBE firm to reduce PNW and exempts personal residence. 2. FAA Legislation and Consistency -- PNW Cap to All Programs Covered by Part 26 and 23? $1.3M Same for All? 3. Retirement Savings Determinations. FASB Recognizes Retirement Savings in PNW. Adjust Personal Net Worth 16 TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM

Expedite Interstate Certification Policy Issues:  Federal Certification – Budget Issues?  Easy Graders – Burden on State or DBE?  Certifications Do Not Expire or Lapse Legal Issues: Integrity  Lots of Complex Issues. Impact on Overall Goal? NAICS Codes Not Applicable in Both States  Extent of Control – Licensing, Foreign Corp.  DBE in One State May Not Be Disadvantaged Due to Availability / Disparity Study in Another 17 TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM

Foster Small Business Participation Agree, But 23 USC 304 [Since 1958] “It is declared to be in the national interest to encourage and develop the actual and potential capacity of small business and to utilize this important segment of our economy to the fullest practicable extent in construction of the Federal-aid highway systems, including the Interstate System. In order to carry out that intent and encourage full and free competition, the Secretary should assist, insofar as feasible, small business enterprises in obtaining contracts in connection with the prosecution of the highway program.” Impact on Precision of Overall DBE Goals 18 TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM

Improve Post-award Oversight Unnecessarily Burdensome - Contract Record and On Site Review Excessive. Purpose Supported – Method Not. Unfunded Mandate 19

TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM Terminations and Substitutions of DBE Subcontractors Should Same Rules Apply to Contracts Without Mandatory Goals. Increase Likelihood of Legal Challenges? 20

Counting Issues  Consensus: Keep as Is.  Actual Payment Achievements Reported But Not Analyzed. Supposed to Count Only Federal Funds.  Question: Some States Can Only Apply Mandatory DBE Goals to Federally Funded Contracts. Others to All Contracts. To What Extent Should States Be Penalized for Such Differences In Legal Flexibility In Setting and Meeting Federal Overall Goals? 21 TRB 90th Annual Meeting Session 264 USDOT 2010 NPRM