FAA Issues Small Business Program Guidance

/sites/default/files/files/Small Business Program Element Announcement_MFreilich_120811.pdf

Federal Aviation Administration and Department of Transportation Issue Question and

Answer Guidance Documents regarding Disadvantaged Business Enterprise (DBE)

Program Rules

Late last week, the FAA and DOT issued new guidance documents to clarify certain provisions

and requirements of their DBE Programs pursuant to 49 CFR Part 26. For airports, these DBE

programs involve opportunities for small and disadvantaged businesses to bid on, and be

involved as subcontractors in, airport construction projects. Under its Final Rule implemented in

January of this year, the Department of Transportation made mandatory a requirement that DBE

programs include a small business element. The guidance documents address a number of

issues, including questions regarding the requirements associated with the small business

element of the program.


ACI-NA’s Business Diversity Committee has monitored the various rulemakings which began in

2009 that culminated in the issuance of the Department’s new rule issued earlier this year. ACINA

also partnered with other aviation trade associations, including the Airport Minority Advisory

Council, Airport Consultants Council, and Conference of Minority Transportation Officials in

comments filed in July 2010, prior to the implementation of the new rule. While ACI-NA and the

associations with which it filed comments, applauded the overall direction and spirit of the

proposals reflected in the proposed rule, we cautioned the Department that any small business

component to the DBE program would need to be considered carefully to ensure that such a

program would not undermine the program’s primary goals of increasing participation in airport

construction programs by minority, women and other disadvantaged business enterprises.

During the Business Diversity Committee’s recent meeting at the Concessions Conference in

Atlanta, Georgia in November of this year, many questions were raised regarding the small

business element of the rule. Gene Roth, Patti Tom and Marcus England of the Office of Civil

Rights, who made presentations to the Committee during that meeting, advised that the FAA

would be issuing a clarifying guidance document to address some of the questions that were

raised on this matter. The guidance document, distributed under a cover letter dated December

8, 2011, from Michael Freilich, FAA Director, Civil Rights, Western-Pacific Region & DBE

Compliance, outlines the actions an airport recipient should take before implementing a small

business program on federally assisted projects as a race-and gender-neutral means of

facilitating DBE participation in meeting the airport recipient’s overall goal.


The clarifying guidance issued by the U. S. Department of Transportation, dated December 6,

2011, addresses many program administration questions of importance to all transportation

DBE programs, including, among others:

Whether a change in the ownership of a DBE-certified firm results in the automatic

decertification of that firm;

Whether recipients should treat as evidence of good faith efforts to meet contract goals

the proposed use of potential DBE firms that are not certified in the recipient’s state;

When a firm should be certified as a “Regular Dealer” and whether a firm that acts as a

regular dealer on one contract should be treated as a regular dealer in all contracts;

Whether a certified DBE firm can voluntarily withdraw from the DBE program; and

Whether a prime contractor can reduce the amount of work committed to a DBE firm at

contract award without good cause.


The letter from Mr. Freilich encourages airport sponsors to submit their small business program

elements and implementation schedules directly to your regional FAA DBE Compliance Team

points-of contact. The submissions are due by February 28, 2012.


The ACI-NA Business Diversity Steering Committee is reviewing the guidance documents and

is interested in receiving your questions and concerns on these documents. You may submit

them to the Business Diversity Committee through Monica R. Hargrove, the Committee



Section 26.39 12/6/2011

The following questions and answers relate to implementation of Section 26.39 Fostering

Small Business Participation

1. What are recipients required to submit to the concerned operating administration

(OA) to comply with 49 CFR § 26.39?

Recipients must submit to the appropriate OA an amendment to their DBE program plan

that sets forth in detail the steps to be taken to facilitate competition by small business


The concerned OA will provide instructions to recipients on whether the amendment

should be submitted for review as a stand-alone document or whether it should be

incorporated into the recipient’s existing DBE program plans. If the amendment is

submitted for review as a stand-alone document, it must be integrated into the body of the

recipient’s DBE program plan document once approved.

There is no requirement that the DBE plan amendment be signed by all recipients in the


Recipients must submit the program amendment to the concerned OA by February 28,


2. By what date must the small business element be implemented?

The implementation date should be established by the OA when it approves the small

business element submitted by the recipient. This date should not be more than nine

months after the approval date.

Recipients are encouraged to include an implementation schedule as part of their

submission to ensure the small business element is fully operational within nine months

of approval.

3. Must the recipient address each of the strategies presented as examples in the rule

as part of its submission?

No. The list of strategies set out in the rule is designed to give you some ideas on how to

accomplish the objectives of the rule. Additional suggestions may be found in the

preamble discussion of the rule at 76 Fed. Reg. 5094. This is not an exclusive list, and

you are not expected to explain why one strategy was chosen instead of others.

Recipients may choose one or more of the listed strategies or may develop any

alternative strategy that can be effective in creating contracting opportunities for small


Recipients (particularly FTA and FAA recipients) also may collaborate with regional

partners by pooling resources and/or creating joint programs, but each recipient in the

collaborative must make a submission to the appropriate OA.

In any case, we believe it to be advisable that your submission address unbundling

contracts in the context of your procurement program, even if unbundling is not

ultimately a strategy you choose.

A recipient that has an existing race-neutral small business program that has been used to

set aside state-funded contracts for competition among small businesses may decide to

use that program for federally-assisted contracts to meet this requirement, subject to OA

approval. However, the recipient is not required to do so. If an existing small business

program is used to comply with the rule, recipients must take steps to separate state and

federal contracts to ensure proper reporting to US DOT of DBE participation on

federally-assisted contracts only.

4. How should recipients define a small business when developing a small business

program to foster small business participation?

Since the small business element developed by a recipient will be a part of the recipient’s

approved DBE program plan, recipients should use the definition of small business

concerns set out in 49 CFR §26.5.

This will ensure that all small businesses allowed to participate in the recipient’s program

(DBEs and non-DBEs alike) are subject to the same size standards and, consequently,

compete with similarly-sized businesses.

A state or local MBE/WBE or other program, in which eligibility requires satisfaction of

race/gender or other criteria in addition to business size, may not be used to comply with

the rule.

5. Should a personal net worth (PNW) requirement be a part of any small business

program used to comply with this requirement?

A recipient has the option of establishing a PNW threshold as an eligibility criterion for

its small business program element. Except in a micro-small business program (where a

PNW threshold could be lower), if a recipient chooses to establish such a requirement as

part of its program, the PNW threshold should be consistent with the one in 49 CFR Part


6. Could a micro-small business program be an appropriate part of a small business

element in a DBE program?

Yes. A recipient may develop a program for very small businesses (e.g., those with

annual gross receipts well below the SBA small business size criteria). As part of such a

program, a recipient could also have a lower PNW threshold for owners of the very small


Where a recipient creates a micro-small business program, we believe it is a best practice

to also provide opportunities to facilitate competition among small businesses that are

larger than those eligible to participate in the micro-small business program.

7. Are small business goals required?

No. The use of small business goals is optional.

The use of race-neutral small business goals on the same contracts that have DBE

contract goals can be difficult to administer. We recommend that recipients not do so

unless they have a clear understanding of these complexities and how they expect to

manage them.

8. Can supportive services programs be used to meet the requirements of section


The FHWA-funded “supportive service program” is intended to be used only to assist

DBEs. Recipients should not include services to non-DBEs as part of that program.

However, a state- or locally-funded supportive services-type program could be made

available to non-DBE firms as a part of the recipient’s small business program element.

Outreach activities are not sufficient, standing alone, to meet the requirements of section

26.39. Recipients are responsible for taking active, effective steps to increase small

business participation.

9. Should a small business program include a verification requirement? If so, may a

recipient rely upon or accept the verification process used by another entity?

Yes to both questions.

To ensure that a firm is in fact a small business concern and to minimize fraud and abuse,

it is advisable for a recipient to take steps to verify eligibility of a firm to participate in

the recipient’s program. This means that a program should not allow firms to selfcertify/

verify as small businesses.

A recipient may rely on the certification/verification processes used by another entity as

long as the process is designed to confirm eligibility consistent with small business

criteria consistent with those of Part 26. A certified DBE is presumed eligible to

participate in a small business program developed to comply with 49 CFR §26.39, unless

it is a micro-small business program.

While it is not necessary for a recipient to verify the small business status of every firm

that might in some way benefit from the recipient’s program, if participation will result in

a tangible advantage for a firm (e.g., getting a contract via a small business set-aside

program), verification is important to avoid program fraud.

10. Are recipients expected to report on the level of small business participation

achieved through their program?

No. Recipients will be required only to track and report any race-neutral participation by

certified DBEs achieved through their small business element or program in the same

way they report race-neutral DBE participation obtained though other methods (see by 49

49 CFR §26.11(a)).

Nevertheless, recipients may find it useful to collect data on small business participation

obtained through their program, in order to answer any future questions that could arise

about the results of their programs.

11. How is the small business program element requirement to be applied to subrecipients?

The required small business program amendment is part of your overall DBE program.

Therefore, it applies to sub-recipients in the same way as your overall DBE program.

Just as direct recipients are expected to ensure that their sub-recipients comply with goalsetting

or certification requirements, so direct recipients are expected to ensure that subrecipients

implement the recipient’s approved small business element made a part of the

recipient’s DBE program plan.

In any case where a sub-recipient has its own DBE program, separate from that of a

direct recipient, the sub-recipient is responsible for creating its own small business

program and submitting it to the concerned operating administration for approval.

12. How does this Q&A relate to guidance posted July 15, 2009, titled “What actions

should a recipient take before implementing a small business program on federally

assisted projects as a race- and gender-neutral means of facilitating DBE participation

in meeting the recipient’s overall goal?”

This guidance should be read in concert with the July 2009 Q&A.

In establishing a race-neutral small business set-aside as a measure under the small

business program element required by section 26.39, you should follow the guidance in

the July 2009 Q&A.

It is important to note that implementing a small business element or program is intended

to facilitate compliance with the twin obligations in 49 CFR §26.51: (1) to meet the

maximum feasible portion of the overall goal by using race-neutral means of obtaining

DBE participation and (2) to establish DBE contract goals to meet any portion of the

overall goal you are unable to meet using race-neutral means alone.

13. The DBE rule appears to prohibit set-asides. How, then, is it permitted to have

small business set-asides as part of the small business program element?

Section 26.43 generally prohibits the use of set-asides for DBEs. This means that

limiting competition on a contract to DBEs – a category based on race- or gender-based

classifications – is forbidden. It is the race-conscious nature of a DBE set-aside that

necessitates this prohibition.

A small business set-aside is different. In this case, competition is limited only on the

basis of business size. This is a race-neutral, rather than race-conscious, classification.

Consequently, a small business set-aside does not fall under the prohibition applying to

DBE set-asides.