AAAE/FAA/AMAC Airport DBE Conference ABCs of DBE Heresy Conference Ossie Jordan & Maria Sarra March 17 - 19, 2008
Overview • DBE In General • Revised ACDBE Rule • Part 26 Updates • Part 23 Updates
DBE in General • Title VI concept • Recipients prohibited from race, color, or national origin discrimination • Adarand Constructors v. Pena, 515 U.S. 200, 235, (1995) requires “strict scrutiny” • Compelling governmental interest • Narrow tailoring (i.e. goal-setting)
DBE In General (Cont.) • 49 CFR Part 26: • DOT (i.e. FHWA, FTA, & FAA) DBE program for recipient contracting • 49 CFR Part 23: • FAA DBE program for airport concessions
Contracting (49 CFR Part 26) • FAA distributes about $3.4 billion annually in AIP grants to help finance airport construction projects. • 3,300 airports are eligible for AIP grants for airport planning & development. • FAA has a policy of ensuring that socially and economically disadvantaged businesses are able to participate in contracting opportunities created by AIP grants.
Certification • Applicants must show that they meet size, group membership, ownership, and control standards by a preponderance of the evidence. • Firms are not considered small businesses concerns and are therefore ineligible as DBEs once their average annual receipts over the preceding three fiscal years reach $20.41 M (DBEs) or $47.78 M (most ACDBEs).
Certification (Cont.) • Firms must also meet separate SBA small business size standards for their type of business. • Certain groups are rebuttably presumed to be socially and economically disadvantaged. These include Native Americans, Blacks, Hispanics, Asian-Pacific Americans, Subcontinent Asian Americans, & Women. • Each disadvantaged individual seeking certification for his or her firm must submit a notarized certification of disadvantage and a statement of personal net worth.
Certification (Cont.) • Eligibility is based on social and economic disadvantage. To ensure that only genuinely disadvantaged individuals participate, there is a $750,000 personal net worth (PNW) cap. • If an individual’s PNW (excluding principal residence and interest in the applicant firm) exceeds $750,000, the person is not an eligible DBE owner.
Certification (Cont.) • Ownership and control requirements provide detailed, specific, clarified standards for determining whether to certify firms. • Each state has a Unified Certification Program (UCP) that certifies DBEs for all DOT recipients in their state.(One-Stop-Shopping)
Goal Reviews • The intent of DOT’s DBE program is to remedy past and current discrimination against DBEs and ensure a "level playing field" -- the amount of DBE participation that could realistically be expected in the absence of discrimination. • The goal must be based on demonstrable evidence of the percentage of DBEs that are ready, willing, and able to perform the types of contracts the airport intends to let.
Goal Reviews (Cont.) • Contract goals are not required on every contract. Recipients must meet as much as possible of their overall goals by using race-neutral measures, like outreach and technical assistance. [49 CFR § 26.51] • They should use race-conscious measures, like contract goals, only to make up the difference.
Goal Reviews (Cont.) • The FAA Civil Rights Offices must review the Part 26 DBE goal-setting methodology submitted by approximately 850 airports each year to ensure compliance with DOT’s DBE regulations. • We must also review the Part 23 goal-setting methodology submitted by approximately 350 primary airports every 3 years, on a staggered 3 year basis.
DBE Participation Reports • Furthermore, our civil rights staff must compile reports of actual DBE participation in contracting and by airport concessions. • “DOORS” program • Airports must submit DBE participation reports to FAA: • Part 26 reports are due December 1 • Part 23 reports are due March 1
DBE Accomplishments • General rule [49 CFR § 26.55] • DBE credit is awarded only for work performed by DBE firms with their own forces • DBE participation under Part 23 is counted in the same way as it is under Part 26
General – Compliance Reviews • Background - FAA has a responsibility to ensure that recipients comply with Part 23 & 26. Civil Rights staff have always conducted compliance reviews. OIG has indicated need for more oversight. • Current Program – To supplement staff reviews, FAA from time to time hires contractors to assist with additional reviews, selected based on a variety of factors.
General – Stakeholder Meetings • FAA Headquarters staff holds monthly Airport DBE Stakeholder Meetings to discuss issues of common concern to the DBE community and to provide updates on FAA and DOT activities. • Attendees typically include representatives from FAA Civil Rights and Counsel, DOT Civil Rights and Counsel, AMAC, AAAE, ACI, as well as national car rental and non-car rental concessionaires local airports and consultants.
Revised Part 23 - Airport Concessions • On March 8, 2005 Secretary Mineta signed the revised final rule on airport concession DBEs. • The revised DBE final rule for airport concessions (49 CFR Part 23) applies to the approximately 350 primary airports that are required to have a DBE program.
Revised Part 23 – Airport Concessions • The two primary objectives of the revised Part 23 airport concessions DBE rule are to: • (1) meet the “narrow tailoring” requirements of Adarand; and • (2) address outstanding issues. • The revisions are based on DOT’s DBE regulations for DOT-assisted contracts under 49 CFR Part 26.
Revised Part 23 - Narrow Tailoring • Personal Net Worth cap • Goal-setting mechanism • Prohibition of set-asides & quotas • Statutory 10% goal is “aspirational” • No penalty for not meeting overall goal • Certification standards • Exemption and waiver • Race-Neutral measures • Sunset provision
Revised Part 23 - Outstanding Issues • Personal Net Worth cap • Small business size standards • Car rental counting
Revised Part 23 - Certification – PNW Cap • $750,000 cap, with three exclusions: • Equity in owner’s primary residence (Also in Part 26) • Assets invested in the business (Also in Part 26) • Assets encumbered or to be encumbered to obtain financing to enter or expand a concessions business (New in Part 23 only) • Capped at $3 million
Revised Part 23 - Certification - Other • Except for size and PNW standards, the eligibility criteria of Part 23 for ACDBEs are almost identical to those of Part 26 • Certification of ACDBEs and all other DBEs will be handled by the UCPs • UCPs/Airports will have up to three years to review certifications of current ACDBEs to ensure that they meet Part 23 criteria
Revised Part 23 - Certification – Other • If a current ACDBE loses eligibility because it cannot meet PNW or business size standards, the business can continue to be counted as an ACDBE with respect to an existing concession contract, but not for extensions or a new contract [49 CFR § 23.55] • If plan to enter into a new contract with an ACDBE before the deadline to review their certification, should first review their eligibility
Revised Part 23 - Car Rental Counting • Longstanding issue: How to count DBE credit for rental cars purchased through DBE dealers • Count like normal DBEs – only transaction cost • Or, count whole value of car (statute/car rental industry view) • Final rule follows statute [49 USC § 47107(e)]
Revised Part 23 - ACDBE Goals • Types of Goals - Primary Airports must set 2 separate goals under Part 23 so car rental participation does not skew the picture for others [49 CFR 23.41(a)] • Car rentals • All other concession activities
Revised Part 23 - ACDBE Goals • Goal Submission Threshold - Many smaller airports have little concession activity • Airports with less than $200K in revenues from car rentals or other concessions, respectively, would not have to do an overall goal for that area [49 CFR § 23.41(b)] • Will reduce administrative burdens for small airports
Revised Part 23 - DBE Goals • Goal Submission Period – [49 CFR § 23.41(c)] Overall goals cover 3 years, rather than 1 year as in Part 26 • Recognizing longer timeframes involved in concession relationships between business and airports • The goal submission dates are staggered over three years [49 CFR § 23.45]
New Part 23 - DBE Goals • Goal-Setting Mechanism – Parallel to Part 26, which has withstood a number of legal challenges and courts have found to help in making the program narrowly tailored • Must consult with stakeholders before setting goal, but public comment period is not required [49 CFR § 23.43]
Part 26 – Western States Paving • Western States Paving v. Washington State DOT, et al., 407 F3d 983 (9th Cir, May 9, 2005) • 9th Circuit panel held that DOT’s Part 26 contracting regulations were constitutional, but found that the Washington State DOT DBE program was unconstitutional as applied. • The court concluded that Washington State DOT’s DBE program was not narrowly tailored because the evidence of discrimination supporting its application was inadequate, including that Washington State DOT had not conducted statistical studies to establish the existence of discrimination in the highway contracting industry that were completed or valid.
Part 26 – Western States • Questions and Answers Concerning Response to Western States Paving Company: http://www.fhwa.dot.gov/civilrights/dbe_memo_a5.htm • Guidance applicable only to recipients in the 9th Circuit for Part 26 DBE Programs • Have evidence to support Race-Conscious Goal or • Submit Race-Neutral Program and • Gather necessary evidence, may include disparity or availability study and • Develop action plan for a disparity/availability study
Part 26 – Study Reimbursement • DOT’s Western States guidance explains that the costs of conducting disparity studies are reimbursable from Federal program funds, subject to the availability of those funds. • For FAA recipients, disparity studies are generally funded as a planning study, and have the same eligibility and performance requirements of other planning studies, although their priority for reimbursement is relatively low. • However, for recipients in 9th Circuit, if a disparity study is required in order to complete allowable AIP project work, then the study is considered an allowable cost of the project and has the same priority for reimbursement as the project.
Part 26 – Northern Contracting Northern Contracting, Inc. v. State of Illinois, et al., 473 F3d 715, (7th Cir, January 8, 2007 • Northern Contracting challenged IDOT’s DBE Program in Federal District Court & sued USDOT • claiming it was unconstitutional
Part 26 – Northern Contracting • USDOT granted summary judgment in District Court • Federal government demonstrated compelling interest – ending effects of discrimination • 49 CFR Part 26 narrowly tailored • After trial, IDOT’s program was found to be narrowly tailored to the compelling interest • Northern Contracting appealed to the 7th Circuit • 7th Circuit held that IDOT’s DBE program was narrowly tailored
Part 26 – Northern Contracting, et al. What does this mean? • In all cases, Adarand, Western States Paving, Sherbrook and Northern Contracting, USDOT’s DBE Program has been upheld and found constitutional
Part 23 - Overview • Guidance • Overview Memo • Overview Pamphlet • Sample Program • Joint Venture • SNPRM • Business Size • Court Challenges • Congressional Activity • Upcoming Conferences
Part 23 – Sample Program • FAA/DOT has prepared this sample program to help sponsors comply with 49 CFR Part 23, the DOT Airport Concession Disadvantaged Business Enterprise (ACDBE) rule. • Sponsors may customize the sample program to meet their needs
Part 23 – Joint Venture Guidance • Main Issue: how to credit the participation of DBE joint venture partners. • Stakeholder listening session (completed), FAA draft (complete), Conference input, another Stakeholder (held yesterday) meeting, Final Guidance
“Joint Venture” Definition – 49 CFR § 23.3 • Association of an ACDBE firm and one or more other firms • Carry out a single for-profit business enterprise • Combine property, capital, efforts, skills and knowledge • ACDBE responsible for clearly defined portion of the work and whose share in the capital contribution, control, management, risks, and profits commensurate with its ownership interest.
JV Certification • Joint venture entities themselves are not certified as ACDBEs – it is the socially and economically disadvantaged joint venture participant that needs to seek certification.
Why need current definition? • Some concession joint ventures do not involve an ACDBE performing an independent part of the work, and have been the focus of fraud investigations by DOT’s Inspector General and other law enforcement organizations. • Avoid prime concessionaire seeking to have an ACDBE “silent partner” on its payroll.
Fronts Fronts refer to ACDBE firm which does not perform work to fulfill ACDBE participation requirements under prime contracts • Prime or Subcontractor pays ACDBE a relatively small amount for the use of ACDBE status to falsely represent that ACDBE is performing the work. • Prime or another non-ACDBE contractor actually performs the work and receives the bulk of the payments. • Payments may be funneled through ACDBE to make it appear that ACDBE performed the work.
Airport Monitoring and Enforcement – § 23.29 • ACDBE programs must include the monitoring and compliance measures the airport will use, including levels of effort and resources devoted to this task. • Describe the frequency of reviews or records, on-site reviews of concession workplaces, etc., to determine whether ACDBEs are actually performing the work for which credit is being claimed. • This type of oversight is crucial to combating ACDBE fraud, and FAA will closely scrutinize this aspect of ACDBE programs.
Enforcement • Airport Sponsor subject to compliance reviews by Office of Civil Rights • 14 CFR Part 16 Airport Enforcement Proceeding • Withhold grant funds • Terminate grant eligibility • DOJ referral for DBE/ACDBE Program Fraud • Jail • Fines • Suspension and Debarment • Listed on the Federal Government’s Excluded Parties List System; not eligible to participate in Federal contracts • DOT directive to UCP to initiate proceeding to remove DBE/ACDBE certification
JV Counting - § 23.55(d) • Credit may be counted only for the • distinct, • clearly defined portion of the work • performed by the ACDBE with its own forces.
Part 23 – SNPRM - Topics • National Car Rental Goal • Anti-Fraud • Business Size
Part 23 – SNPRM – Car Rental Goal • Proposed revision to the Part 23 regulations, to allow national car rental companies to set DBE goals rather than each individual airport. This is a concept borrowed from Part 26 with regard to transit vehicle manufacturers. • 1st Stakeholder Meeting, Industry Meeting, Concept Paper, Bullet Points, 2nd Stakeholder Meeting (held yesterday), Possible Rulemaking • Issues to consider: certification, goal-setting, reporting
Part 23 – SNPRM - Business Size • To meet constitutional standards, race and gender based programs must be narrowly tailored to meet a compelling governmental interest. • One element of a narrowly tailored DBE program is that a DBE business must be small, as measured by gross receipts or number of employees.
Business Size - §§ 23.33 and 26.65 • Existing business size standards have not been adjusted for inflation since 1992. • A final rule issued by DOT on April 2, 2007 makes inflationary adjustments for ACDBE and DBE size standards, and provides for future adjustments.
Business Size – Changes • Most ACDBE businesses - $47.78 M gross receipts • ACDBE Banks and Financial Institutions - $750 M in assets • Car rental ACDBE businesses - $63.71 M gross receipts • Pay Telephone ACDBE businesses - 1,500 employees • ACDBE Automobile Dealers - 200 employees • DBE Businesses - $20.41 M gross receipts
Part 23 – Recent Court Challenges • Pacific Legal Foundation v. Port of Oakland • Challenges Port’s non-car rental Part 23 program • Claim under Proposition 209 • Assoc. Gen. Contractors v. Broward County • Challenges County’s Part 26 program