AAAEFAAAMAC Airport DBE Conference

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AAAE/FAA/AMAC Airport DBE Conference

• ABCs of DBE

Heresy Conference
Ossie Jordan Maria Sarra
March 17 - 19, 2008
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Overview

• DBE In General
• Revised ACDBE Rule
• Part 26 Updates
• Part 23 Updates

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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)

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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

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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.

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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).

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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.

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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 individuals PNW (excluding principal
  residence and interest in the applicant firm)
  exceeds 750,000, the person is not an eligible
  DBE owner.

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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)

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Goal Reviews

• The intent of DOTs 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.

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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.

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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 DOTs 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.

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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

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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

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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.

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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.

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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.

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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 DOTs DBE regulations
  for DOT-assisted contracts under 49 CFR Part 26.
  

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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

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Revised Part 23 - Outstanding Issues

• Personal Net Worth cap
• Small business size standards
• Car rental counting

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Revised Part 23 - Certification PNW Cap

• 750,000 cap, with three exclusions
• Equity in owners 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

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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

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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

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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)

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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

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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

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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

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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

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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 DOTs 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 DOTs
  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.

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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

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Part 26 Study Reimbursement

• DOTs 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.

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Part 26 Northern Contracting

• Northern Contracting, Inc. v. State of Illinois,
  et al., 473 F3d 715, (7th Cir, January 8, 2007
• Northern Contracting challenged IDOTs DBE
  Program in Federal District Court sued USDOT
• claiming it was unconstitutional

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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, IDOTs program was found to be
  narrowly tailored to the compelling interest
• Northern Contracting appealed to the 7th Circuit
• 7th Circuit held that IDOTs DBE program was
  narrowly tailored

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Part 26 Northern Contracting, et al.

• What does this mean?
• In all cases, Adarand, Western States Paving,
  Sherbrook and Northern Contracting, USDOTs DBE
  Program has been upheld and found constitutional

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Part 23 - Overview

• Guidance
• Overview Memo
• Overview Pamphlet
• Sample Program
• Joint Venture
• SNPRM
• Business Size
• Court Challenges
• Congressional Activity
• Upcoming Conferences

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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

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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

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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.

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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.

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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 DOTs Inspector General and other law
  enforcement organizations.
• Avoid prime concessionaire seeking to have an
  ACDBE silent partner on its payroll.

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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.

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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.

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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 Governments Excluded
  Parties List System not eligible to participate
  in Federal contracts
• DOT directive to UCP to initiate proceeding to
  remove DBE/ACDBE certification

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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.

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Part 23 SNPRM - Topics

• National Car Rental Goal
• Anti-Fraud
• Business Size

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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

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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.

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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.

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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

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Part 23 Recent Court Challenges

• Pacific Legal Foundation v. Port of Oakland
• Challenges Ports non-car rental Part 23 program
• Claim under Proposition 209
• Assoc. Gen. Contractors v. Broward County
• Challenges Countys Part 26 program

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Part 23 Recent Congressional Activity

• Language in FAAs reauthorization bill to require
  DOT to conduct DBE certification training
• Amendment in Appropriations Bill to prohibit race
  or gender preferences in DOT programs

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Upcoming Conferences

• ACI Legal Conference
• April 17-18 (Ft. Lauderdale)
• DBE Summit
• April 23-25 (San Diego)
• FAA/AMAC Annual Business Diversity Conference
• May 31 to June 3 (Indianapolis)
• FAA Small Business Conference
• June 16-19 (Las Vegas)
• AASHTO Natl Transp Civ Rts Conf
• September 5-10 (Anchorage)

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FAAs External Civil Rights Website

• FAAs Office of Civil Rights is has updated its
  external civil rights website at
• http//www.faa.gov/about/office_org/headquarters_
  offices/acr/
• There are two external civil rights sections
• Airport Disadvantaged Business Enterprise Program
• Airport Civil Rights Programs

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Questions
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The End Thank You!!