Disadvantaged Business Enterprise Program
Assessing Use of Proxy Data Would Enhance Ability to Know If States Are Meeting Their Goals Gao ID: GAO-12-78 October 13, 2011The U.S. Department of Transportation's (DOT) Disadvantaged Business Enterprise (DBE) program aims to increase the participation of small businesses owned and controlled by socially and economically disadvantaged individuals--known as DBEs--in highway contracting. In 2009, U.S. DOT awarded, through state and local governments, about $4 billion to DBEs nationwide. State DOTs are required to establish DBE programs and implement them on federal-aid highway projects. This report responds to a congressional request to examine U.S. DOT's Federal Highway Administration's (FHWA) oversight of state DOT DBE programs. It examines how FHWA (1) oversees state DOTs to ensure they implement their DBE programs according to applicable regulations, (2) assesses whether state DOTs have met their DBE goals, and (3) oversees organizations that certify businesses as DBEs. GAO analyzed FHWA data; reviewed relevant laws and regulations; and interviewed FHWA, and state DOT officials from five states, selected to obtain variation in, among other things, the methods state DOTs use to meet DBE goals.
FHWA uses a risk-based approach, which includes conducting risk assessments and day-to-day monitoring, to oversee DBE programs that state DOTs implement. In response to FHWA's designation of the DBE program as an agencywide high-risk area from 2007 through 2010 and other reasons, FHWA recently increased its oversight of state DOT DBE programs. For example, in 2010, FHWA hired a full-time DBE Program Manager and required FHWA division offices in each state to explain to FHWA headquarters how they oversee their state DOTs' DBE programs. While these steps could help FHWA ensure state DOT compliance with regulations, it is too early to assess their effectiveness. Although FHWA has increased its oversight, FHWA faces two fundamental problems with the DBE data it collects from state DOTs to assess whether state DOTs have met their DBE goals. First, the data that FHWA collects from state DOTs on actual spending on DBEs can cover multiple fiscal years and cannot be meaningfully compared to state DOTs' DBE goals, which reflect the percent of federal-aid highway funds state DOTs will expect to spend on DBEs for one fiscal year. Thus, FHWA may not be able to effectively track whether state DOTs have met their goals as required by federal internal control standards. Second, data on committed spending on DBEs--the proxy measure that FHWA uses instead to measure whether goals were met--shows that about half of the state DOTs met their DBE goals each fiscal year from fiscal years 2006 through 2010; however, FHWA has not conducted a nationwide analysis comparing committed to actual spending to know whether committed spending reflects actual spending for DBEs in all state DOTs. Thus, FHWA does not know whether its data on committed spending can be relied on to evaluate a state DOT's progress in meeting DBE goals. Ensuring that committed spending data are a reasonable proxy is important because state DOTs and FHWA make program decisions based on this information. U.S. DOT's working group that considers various improvements to the administration of the DBE program could provide FHWA with an opportunity to identify options it can use to evaluate its proxy data. Also, while FHWA uses committed spending data to facilitate timely reporting of whether state DOTs have met their goals, FHWA's reporting of data on committed spending to describe progress towards DBE goals does not include statements about potential limitations of the data--namely that the data on committed spending on DBEs might not reflect actual spending. FHWA oversees the certification activities of state DOTs, which certify that DBEs primarily working on federal-aid highway projects meet federal eligibility requirements. Other U.S. DOT administrations--the Federal Aviation Administration and the Federal Transit Administration--oversee other certifying organizations, such as local airport authorities and state transit agencies, that certify DBEs for work primarily in those areas; such DBEs might also have the skills required (e.g., paving) to work on highway projects. FHWA divisions use their discretion to determine how much and how often to oversee state DOT DBE certification activities. GAO recommends that FHWA (1) evaluate its committed spending data to determine if it is a reasonable proxy and (2) include statements in information provided to decision makers about potential data limitations. U.S. DOT provided comments on the draft recommendations; GAO clarified the recommendations based on U.S. DOT's comments. U.S. DOT agreed to consider the recommendations.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Lorelei St. James Team: Government Accountability Office: Physical Infrastructure Phone: (214) 777-5719GAO-12-78, Disadvantaged Business Enterprise Program: Assessing Use of Proxy Data Would Enhance Ability to Know If States Are Meeting Their Goals
This is the accessible text file for GAO report number GAO-11-78
entitled 'Disadvantaged Business Enterprise Program: Assessing Use of
Proxy Data Would Enhance Ability to Know If States Are Meeting Their
Goals' which was released on November 16, 2011.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to the Ranking Member, Subcommittee on Highways and Transit,
Committee on Transportation and Infrastructure, House of
Representatives:
October 2011:
Disadvantaged Business Enterprise Program:
Assessing Use of Proxy Data Would Enhance Ability to Know If States
Are Meeting Their Goals:
GAO-12-78:
GAO Highlights:
Highlights of GAO-12-78, a report to the Ranking Member, Subcommittee
on Highways and Transit, Committee on Transportation and
Infrastructure, House of Representatives.
Why GAO Did This Study:
The U.S. Department of Transportation‘s (DOT) Disadvantaged Business
Enterprise (DBE) program aims to increase the participation of small
businesses owned and controlled by socially and economically
disadvantaged individuals-”known as DBEs”-in highway contracting. In
2009, U.S. DOT awarded, through state and local governments, about $4
billion to DBEs nationwide. State DOTs are required to establish DBE
programs and implement them on federal-aid highway projects. This
report responds to a congressional request to examine U.S. DOT‘s
Federal Highway Administration‘s (FHWA) oversight of state DOT DBE
programs. It examines how FHWA (1) oversees state DOTs to ensure they
implement their DBE programs according to applicable regulations, (2)
assesses whether state DOTs have met their DBE goals, and (3) oversees
organizations that certify businesses as DBEs. GAO analyzed FHWA data;
reviewed relevant laws and regulations; and interviewed FHWA, and
state DOT officials from five states, selected to obtain variation in,
among other things, the methods state DOTs use to meet DBE goals.
What GAO Found:
FHWA uses a risk-based approach, which includes conducting risk
assessments and day-to-day monitoring, to oversee DBE programs that
state DOTs implement. In response to FHWA‘s designation of the DBE
program as an agencywide high-risk area from 2007 through 2010 and
other reasons, FHWA recently increased its oversight of state DOT DBE
programs. For example, in 2010, FHWA hired a full-time DBE Program
Manager and required FHWA division offices in each state to explain to
FHWA headquarters how they oversee their state DOTs‘ DBE programs.
While these steps could help FHWA ensure state DOT compliance with
regulations, it is too early to assess their effectiveness.
Although FHWA has increased its oversight, FHWA faces two fundamental
problems with the DBE data it collects from state DOTs to assess
whether state DOTs have met their DBE goals. First, the data that FHWA
collects from state DOTs on actual spending on DBEs can cover multiple
fiscal years and cannot be meaningfully compared to state DOTs‘ DBE
goals, which reflect the percent of federal-aid highway funds state
DOTs will expect to spend on DBEs for one fiscal year. Thus, FHWA may
not be able to effectively track whether state DOTs have met their
goals as required by federal internal control standards. Second, data
on committed spending on DBEs”-the proxy measure that FHWA uses
instead to measure whether goals were met-”shows that about half of
the state DOTs met their DBE goals each fiscal year from fiscal years
2006 through 2010; however, FHWA has not conducted a nationwide
analysis comparing committed to actual spending to know whether
committed spending reflects actual spending for DBEs in all state
DOTs. Thus, FHWA does not know whether its data on committed spending
can be relied on to evaluate a state DOT‘s progress in meeting DBE
goals. Ensuring that committed spending data are a reasonable proxy is
important because state DOTs and FHWA make program decisions based on
this information. U.S. DOT‘s working group that considers various
improvements to the administration of the DBE program could provide
FHWA with an opportunity to identify options it can use to evaluate
its proxy data. Also, while FHWA uses committed spending data to
facilitate timely reporting of whether state DOTs have met their
goals, FHWA‘s reporting of data on committed spending to describe
progress towards DBE goals does not include statements about potential
limitations of the data”namely that the data on committed spending on
DBEs might not reflect actual spending.
FHWA oversees the certification activities of state DOTs, which
certify that DBEs primarily working on federal-aid highway projects
meet federal eligibility requirements. Other U.S. DOT administrations”-
the Federal Aviation Administration and the Federal Transit
Administration-”oversee other certifying organizations, such as local
airport authorities and state transit agencies, that certify DBEs for
work primarily in those areas; such DBEs might also have the skills
required (e.g., paving) to work on highway projects. FHWA divisions
use their discretion to determine how much and how often to oversee
state DOT DBE certification activities.
What GAO Recommends:
GAO recommends that FHWA (1) evaluate its committed spending data to
determine if it is a reasonable proxy and (2) include statements in
information provided to decision makers about potential data
limitations. U.S. DOT provided comments on the draft recommendations;
GAO clarified the recommendations based on U.S. DOT‘s comments. U.S.
DOT agreed to consider the recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-12-78] or key
components. For more information, contact Lorelei St.James at (202)
512-2834 or stjamesl@gao.gov.
[End of section]
Contents:
Letter:
Background:
FHWA's Oversight of State DOT DBE Programs:
FHWA Faces Fundamental Problems in Its Use of DBE Data:
FHWA Oversight of Certifying Organizations:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Summary of Key DBE Regulatory Eligibility Requirements:
Appendix III: Number and Percentage of State DOTs Meeting DBE Goals
Based on Committed Spending Data from Uniform Reports, Fiscal Years
2006 through 2010:
Appendix IV: How FAA and FTA Oversee the Certifying Organizations for
Which They Are Responsible:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Summary of Key DBE Eligibility Requirements:
Table 2: Number and Percentage of State DOTs Meeting DBE Goals Based
on Committed Spending Data from Uniform Reports, Fiscal Years 2006
through 2010:
Figures:
Figure 1: Examples of Organizations that Certify DBEs:
Abbreviations:
DBE: Disadvantaged Business Enterprise:
DOT: Department of Transportation:
FAA: Federal Aviation Administration:
FHWA: Federal Highway Administration:
FTA: Federal Transit Administration:
GPRAMA: GPRA Modernization Act of 2010:
NRT: National Review Team:
Recovery Act: American Recovery and Reinvestment Act of 2009:
SAFETEA-LU: Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users:
STAA: Surface Transportation Assistance Act of 1982:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
October 13, 2011:
The Honorable Peter A. DeFazio:
Ranking Member:
Subcommittee on Highways and Transit:
Committee on Transportation and Infrastructure:
House of Representatives:
Dear Mr. DeFazio:
The U.S. Department of Transportation's (DOT) Disadvantaged Business
Enterprise (DBE) program aims to increase the participation of small
businesses owned and controlled by socially and economically
disadvantaged individuals--known as DBEs--on certain contracts for
which U.S. DOT provides financial assistance. According to U.S. DOT's
regulations on the program, the DBE program also aims to, among other
things, create a level playing field for DBEs so that they can compete
fairly on these contracts. In 2009, U.S. DOT--through its Federal
Highway Administration (FHWA), Federal Aviation Administration (FAA),
and Federal Transit Administration (FTA)--awarded about $4 billion (or
about 9.4 percent of U.S. DOT's total assisted contracting[Footnote
1]) to DBEs nationwide. While recipients, such as state DOTs, of
certain types of U.S. DOT funds[Footnote 2] are responsible for
implementing the DBE program, federal oversight of these recipients is
critical for ensuring that the objectives of the program are achieved,
federal funds are spent appropriately, and the program benefits
qualified businesses. Furthermore, transparency in how federal dollars
are spent in the DBE program is critical for ensuring accountability
in the program and ensuring the effective and efficient performance
and management of the program.
FHWA, FAA, and FTA--which are operating administrations within U.S.
DOT--are responsible for overseeing recipients' implementation of the
DBE program. Specifically, FHWA is responsible for overseeing how
state DOTs implement the DBE program on federal-aid highway
projects[Footnote 3] and whether state DOTs comply with the
requirements set forth in statute and U.S. DOT's regulations.[Footnote
4] A number of offices within FHWA are involved in helping oversee the
DBE program. For example, at the national level, FHWA's Office of
Civil Rights monitors nationwide progress in meeting DBE goals. FHWA's
division offices--located in each state, the District of Columbia, and
Puerto Rico--oversee state DOTs' day-to-day implementation of the DBE
program. Given FHWA's role in overseeing the state DOTs'
implementation of the DBE program, this report examines how FHWA:
1. oversees state DOTs to ensure that they are implementing their DBE
programs in accordance with applicable regulations,
2. assesses whether state DOTs are meeting their DBE goals, and:
3. oversees organizations that certify DBEs that work on federal-aid
highway projects.
To address our three objectives, we reviewed relevant laws and
regulations pertaining to the DBE program. We also reviewed
documentation and interviewed officials from U.S. DOT's and FHWA's
Offices of Civil Rights, as well as officials and representatives from
five states: Florida, Minnesota, Missouri, Washington, and
Wisconsin.[Footnote 5] We judgmentally selected the five states to
obtain variation in, among other areas, the extent to which state DOTs
met their DBE goals, the number of certifying organizations in the
state, and geographic location. Specifically, in each of the states,
we reviewed documentation and interviewed officials from FHWA
divisions and state DOTs about FHWA's oversight of state DOTs' DBE
activities. In each state, we also reviewed documentation and
interviewed officials from organizations that certify DBEs that work
on federally funded highway projects--such as state DOTs and local
transit agencies--and judgmentally selected these organizations based
on, among other things, their geographic location and whether they
certified DBEs that work on highway projects. We compared FHWA's
oversight of state DOTs' DBE activities to GAO reports on oversight
and accountability, including GAO guidance on internal controls.
[Footnote 6] Additionally, to address the three objectives, we
reviewed the findings of the National Review Team (NRT) that FHWA
established to oversee DBE program implementation on American Recovery
and Reinvestment Act of 2009 (Recovery Act)[Footnote 7] projects.
[Footnote 8] Separately, to examine how FHWA assesses whether state
DOTs are meeting their DBE goals, we analyzed FHWA's national data on
state DOTs' committed and actual spending and how FHWA determined
whether state DOTs achieved their DBE goals for fiscal years 2006
through 2010.[Footnote 9] We conducted selected quality checks of the
data, compared FHWA's national data to the data in the Uniform Report
of DBE Awards or Commitments and Payments (commonly referred to as the
Uniform Report) for the five state DOTs that we contacted, and
resolved inconsistencies with the appropriate agency officials. Given
our review of the data provided to us by FHWA, we identified problems
with the data FHWA uses to assess whether state DOTs achieved their
DBE goals, which we discuss in this report.
We conducted this performance audit from September 2010 to October
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives. See
appendix I for more information about our scope and methodology.
Background:
U.S. DOT established a minority and women's business enterprise
program for its highway, airport, and transit programs by regulation
in 1980.[Footnote 10] The Surface Transportation Assistance Act of
1982 (STAA) contained the first statutory DBE provision authorizing a
U.S. DOT DBE program. As amended, the provision requires that not less
than 10 percent of the amounts made available by the act be expended
through small businesses owned and controlled by socially and
economically disadvantaged individuals--known as disadvantaged
business enterprises or DBEs--unless the Secretary of Transportation
determines otherwise.[Footnote 11] Following STAA, the DBE program
continued to be reauthorized, and was last reauthorized in the Safe,
Accountable, Flexible, Efficient Transportation Equity Act:A Legacy
for Users (SAFETEA-LU).[Footnote 12]
As a condition of receiving certain federal transportation funds from
U.S. DOT, recipients of these funds, such as state DOTs, are required
to implement a DBE program in accordance with U.S. DOT's DBE
regulations.[Footnote 13] The regulations require that each state DOT
set an annual goal for DBE participation in federal-aid highway
projects, expressed as the percent of federal-aid highway funds it
will expect to spend on DBEs for contracts that are awarded or
committed in a fiscal year.[Footnote 14] According to U.S. DOT, these
goals are based on each state DOT's particular circumstances and
represent the level of DBE participation that the state DOT would
expect absent the effects of discrimination in a relevant market area.
[Footnote 15] For fiscal year 2010, state DOTs' DBE goals ranged from
4 percent to about 24 percent of each state DOTs' federal-aid highway
funds. For example, in fiscal year 2010, one state DOT's goal was to
spend 12.6 percent of its federal-aid highway funds on DBEs. In
establishing their DBE goals, state DOTs must provide for public
participation, which includes, for example, consulting with contractor
groups and accepting comments on the proposed goal.[Footnote 16] Once
established, the methodology and process that state DOTs use to
develop the goals are subject to FHWA approval, according to FHWA.
[Footnote 17] To help meet their DBE goals, state DOTs can take
various actions, including setting DBE goals on individual U.S. DOT-
assisted contracts. DBE goals on these U.S. DOT-assisted contracts are
called contract goals.[Footnote 18],[Footnote 19] Each contract goal
on an individual U.S. DOT-assisted contract is expressed as the
percentage of federal-aid highway funds the state DOT will expend on
DBEs on the individual contract.
When a state DOT sets DBE contract goals on individual U.S. DOT-
assisted contracts, bidders on those contracts must make good faith
efforts to meet those goals.[Footnote 20] The bidder can meet this
requirement in one of two ways: (1) meet the goal on the individual
U.S. DOT-assisted contract, or (2) document that it made adequate good
faith efforts--meaning that the bidder took the necessary and
reasonable steps to achieve the goal even though it did not succeed in
obtaining enough DBE participation to do so.[Footnote 21] State DOTs
are responsible for evaluating whether bidders made good faith efforts
to meet their goals, and according to U.S. DOT officials, this
evaluation is subject to FHWA review as appropriate.
FHWA collects data from state DOTs on their DBE programs.
Specifically, U.S. DOT's DBE regulations require that all state DOTs
report to FHWA their federal spending on DBEs using a form called the
Uniform Report of DBE Awards or Commitments and Payments (commonly
referred to as the Uniform Report).[Footnote 22] These reports are due
June 1 and December 1 each fiscal year, covering two reporting
periods--the first and second half of the fiscal year, respectively.
In the Uniform Reports, state DOTs report to FHWA two types of data on
spending on DBEs: committed spending on DBEs and actual spending on
DBEs. Committed spending on DBEs is the total amount of federal funds
that state DOTs award or commit to DBEs in the fiscal year.[Footnote
23], [Footnote 24] Committed spending data on contracts awarded in the
fiscal year include data on contracts that will be completed in the
fiscal year as well as ongoing contracts.[Footnote 25] These data
include completed and ongoing contracts because some highway contracts
can be relatively short and can be awarded and completed within the
same fiscal year, whereas other highway contracts can cover multiple
years between award and completion.[Footnote 26] Actual spending on
DBEs is the total amount of actual payments that state DOTs make to
DBEs using federal funds on contracts that are completed in the fiscal
year.[Footnote 27] Actual spending includes spending on contracts
completed in the fiscal year and can include contracts that were
awarded in previous years.
For certification of DBEs, U.S. DOT requires DBEs to be certified in
each state where they want to bid on or participate in U.S. DOT-
assisted contracts. DBEs are certified according to U.S. DOT's
regulatory eligibility requirements and certification procedures.
[Footnote 28] Specifically, DBEs must be small businesses that are at
least 51 percent owned by one or more individuals who are socially and
economically disadvantaged, and that are managed, operated, and
controlled by these owners.[Footnote 29] (See app. II for more details
on the eligibility requirements.) Organizations that certify DBEs must
take many steps to ensure that a DBE firm meets certification
requirements--this includes, among other things, reviewing firms'
applications for certification; conducting on-site visits and
interviews; and reviewing licenses, stock ownership, equipment, work
completed, resumes of principal owners, and the bonding and financial
capacity of the firm. Furthermore, DBEs are certified only in the type
or types of work, such as paving, that they can perform. According to
U.S. DOT, in 2009, about 27,000 DBEs were certified under its program.
[Footnote 30]
Generally, organizations within each state that receive DOT funds
decide which organizations within the state can certify DBEs. While
some states have multiple organizations certifying DBEs, others have
one certifying organization. For example, in the five states we
focused on as part of this review, four states (Florida, Minnesota,
Missouri, and Wisconsin) have multiple organizations within the state
that certify DBEs, and the remaining state (Washington) has one
organization that certifies DBEs for the entire state. Each state is
required by DBE regulations to have a unified approach to
certification so that the certification decisions of one organization
are honored by all the organizations receiving U.S. DOT funds in the
state.[Footnote 31] This essentially allows for a "one-stop shop" for
DBE firms seeking certification, meaning that a DBE only needs to
apply for certification with one organization in the state, rather
than apply for certification from all the organizations in the state
with which the DBE wants to conduct work. The organizations that
certify DBEs may include the state DOT, local airport authorities,
state and local transit agencies, and city and county governments. For
example, Florida has 13 organizations that certify DBEs--including
Florida DOT, the Greater Orlando Aviation Authority, and Miami-Dade
County. See figure 1 for examples of organizations that certify DBEs.
Figure 1: Examples of Organizations that Certify DBEs:
[Refer to PDF for image: illustration]
State DOTs:
Examples:
* Minnesota DOT;
* Wisconsin DOT;
* Florida DOT.
Local airport authorities:
Examples:
* Greater Orlando Aviation Authority;
* Lambert-St. Louis International Airport.
State and local transit agencies:
Examples:
* Kansas City area Transportation Authority;
* Jacksonville Transportation Authority.
City and county governments:
Examples:
* City of Madison;
* City of Tallahassee;
* Miami-Dade County.
Source: GAO analysis.
[End of figure]
The type of work a DBE performs and the DBE's geographic location can
play a role in some states in determining which organization in the
state reviews a firm's application for certification and certifies the
firm as a DBE. State DOTs primarily review applications and certify
DBEs that work on highway projects, while local airport authorities
and state and local transit agencies primarily review applications and
certify DBEs that work on airport and transit projects, respectively.
Nevertheless, the DBEs certified by organizations other than state
DOTs (such as local airport authorities and state and local transit
agencies) can also work on highway projects if the type of work they
are certified to perform can be applied to both airport or transit and
highway projects. For example, if a DBE is certified to do paving,
this DBE may be able to do paving work on both highway and airport
projects. Geographic location may also play a role in determining
which organization reviews a firm's application for certification and
certifies DBEs. For example, a county government in Wisconsin
certifies DBEs from six nearby counties in the state, regardless of
whether the DBE is interested in working on federal highway, transit,
or airport projects.
FHWA's Oversight of State DOT DBE Programs:
FHWA Uses a Risk-Based Approach to Oversee State DOT DBE Programs and
Has Identified the DBE Program as a Risk Area:
Federal agencies should perform a number of oversight activities to
safeguard against fraud and to ensure that federal programs meet their
objectives and comply with federal regulations.[Footnote 32] FHWA
oversees the DBE program as part of its oversight of state DOTs'
implementation of federal-aid highway programs. FHWA offices--
including FHWA's Office of Civil Rights, a program office located in
the agency's headquarters office, and FHWA's 52 division offices,
which are located in each state, the District of Columbia, and Puerto
Rico--oversee the DBE program. FHWA's Office of Civil Rights is
responsible for a number of civil rights programs, including the DBE
program, and the division offices perform primary oversight of state
DOT activities. In general, these offices oversee the DBE program
through risk assessments, day-to-day monitoring of state DOT
activities, and program reviews.
Risk Assessments:
FHWA's annual risk assessments identify and assess risks across all
federal-aid highway programs, including the DBE program.[Footnote 33]
FHWA uses the results of these risk assessments to help it determine
how to focus its oversight. Both FHWA's program offices and division
offices conduct these assessments and use the results to take actions
to address the risks they identify, which have recently included the
DBE program.[Footnote 34] In addition, FHWA uses the results of the
program office and division office risk assessments to identify
agencywide risk.
* Program office risk assessments. In 2010 FHWA's Office of Civil
Rights identified the DBE program as a risk area because of the
potential for, among other things, a significant increase in fraud and
abuse, improper program implementation, and costly litigation.
Furthermore, the office identified specific risk areas within the DBE
program, including DBE goals and DBE certifications. Given the Office
of Civil Rights' identification of the DBE program as a risk area, the
office has taken actions, such as hiring a full-time DBE Program
Manager, to help address the potential problems identified (e.g.,
fraud, improper program implementation, and other risks).
* Division office risk assessments. In 2010, 23 of 52 FHWA division
offices identified the DBE program as a risk area. These divisions
identified the DBE program as a risk area because of, among other
things, challenges related to the stewardship and administration of
state DOTs' DBE programs and to contractor compliance with DBE program
requirements. For example, one division office identified the DBE
program as a risk area because of concerns regarding the stewardship
and oversight of a state DOT's DBE program that could lead to, among
other things, confusion and lack of understanding about how to
properly implement the DBE program requirements, increasing the
opportunity for fraud and abuse. To address these risks, the division
planned to provide training to state DOT officials on requirements
specified in the DBE regulations and planned to conduct a program
review of the state DOT's implementation of specific DBE regulations,
such as those related to monitoring and achieving contract goals.
* Agencywide risk identification. Based on the results of program
office and division office risk assessments, FHWA identifies risks
that are relevant for the entire agency. These risks become key
drivers in developing FHWA's strategic implementation plan, which
reflects the administration's priorities for the upcoming year.
According to FHWA officials, FHWA first identified the DBE program as
an agencywide high-risk area in 2007 because the DBE program accounted
for 50 percent of the risks identified in the entire civil rights
area. This designation as a high-risk area continued through
2010.[Footnote 35] In response to the agencywide designation of the
DBE program as a high-risk area, FHWA has recently increased its
oversight of the DBE program.
Day-to-Day Monitoring:
FHWA division officials we interviewed from all five of the states we
focused on said that they monitor state DOT activities on an ongoing
basis to help oversee all federal-aid highway programs implemented by
state DOTs, including the DBE program, and to help identify areas that
need increased oversight attention. For example, one division official
we interviewed said that as a part of his day-to-day oversight, he
reviews the state DOT's process for setting contract goals. In some
instances, this division official said that he found that the state
DOT had set all contract goals too low to meet the state DOT's DBE
goal.[Footnote 36] Furthermore, officials from all five of the
division offices said that they participate in meetings with state
DOTs and/or receive reports from state DOTs that help them identify
areas where there may be problems and where they need to focus their
attention. For example, one division office that we focused on as part
of our review requires its state DOT to provide quarterly progress
reports on DBE contract goals. The official we interviewed from this
division office said that these reports help her identify issues, such
as issues related to goals on individual U.S. DOT-assisted contracts,
which she may not otherwise hear about from her daily interactions
with the state DOT.
Program Reviews:
In 2007 and 2008, FHWA conducted program reviews of all its federal-
aid highway programs, including the DBE program. FHWA conducted these
reviews to determine which federal highway programs required greater
federal oversight and assistance. For the DBE program reviews, FHWA
officials--including those from the divisions--reviewed each state
DOT's implementation of the DBE regulations to determine if the state
DOT needed more federal oversight and assistance in implementing the
regulations.[Footnote 37] Based on the results of the 2007 and 2008
reviews, FHWA's Office of Civil Rights decided to conduct the DBE
program reviews again in 2010 and 2011.[Footnote 38] Like the 2007 and
2008 reviews, the 2010 and 2011 reviews assessed how state DOTs
implemented the DBE regulations. The 2010 and 2011 program reviews
assessed, for example, whether a state DOT provided opportunities for
public participation when establishing its DBE goal, as required by
the DBE regulations. An official from FHWA's Office of Civil Rights
said that based on the results of the recent program reviews, the
office plans to compile all the concerns and problems identified in
the reviews in a report for FHWA division and state DOT leadership,
and also implement improvements in state DOTs' DBE programs. Officials
from FHWA's Office of Civil Rights said that they are still collecting
the results of the program reviews from FHWA divisions and state DOTs
and, as a result, have not yet completed an initial report that
compiles all the concerns or problems identified nor implemented any
improvements in state DOT DBE programs.
FHWA Has Recently Increased Its Oversight to Help Ensure State DOTs'
Compliance with DBE Regulations:
In response to the current administration's focus on small business
programs (such as the DBE program), U.S. DOT's interest in increasing
accountability in DBE program implementation, and FHWA's continued
designation of the DBE program as an agencywide high risk area, FHWA
and U.S. DOT have taken a number of steps in the past 2 years to
increase its oversight of state DOT DBE programs. Some of the more
significant actions are as follows:
* DBE Program Manager. FHWA hired a full-time National DBE Program
Manager in 2010 to help oversee state DOTs' implementation of the DBE
program.
* Action Plans. Starting in 2010, FHWA's Office of Civil Rights
required that all FHWA divisions develop and submit action plans that,
in part, describe division office oversight activities, identify areas
in state DOT DBE programs that need improvement, and identify actions
the division offices will take to improve their and the states'
leadership and management of the DBE program. The Office of Civil
Rights also required that FHWA divisions submit quarterly reports that
provide an update on what they are doing to implement the actions the
divisions have identified to improve the leadership and management of
the DBE program.
* Regulations. In January 2011, U.S. DOT updated its DBE regulations
to, among other things, add a requirement for state DOTs to analyze in
detail the reasons for any difference between their state DOT DBE goal
and the amount of federal funds the state DOT committed to spend on
DBEs for each fiscal year. State DOTs must then establish specific
steps and milestones to correct the problems they identified in their
analysis and to fully meet its DBE goal in the next fiscal year.
[Footnote 39] These requirements went into effect in February 2011.
[Footnote 40] According to U.S. DOT, the added requirement will help
state DOTs understand, when applicable, why their DBE goals are not
being met, and will increase state DOTs' accountability for meeting
DBE goals. Based on FHWA's most recent data, 54 percent of state DOTs
did not meet their DBE goals in fiscal year 2010 and would have been
subject to this requirement in fiscal year 2010 if it had been in
effect. See appendix III for further information on the number and
percent of state DOTs meeting their DBE goals based on committed
spending.
* National Review Team (NRT). In response to FHWA's 2009 risk
assessment, FHWA established the NRT to review six areas, including
the DBE program, that posed a nationwide risk of misuse of Recovery
Act funds.[Footnote 41] FHWA used the results of the NRT review to
identify areas for improved oversight and training. For example, the
NRT identified concerns about the process that some state DOTs were
using to evaluate whether prime contractors bidding on contracts made
adequate good faith efforts to meet DBE contract goals.[Footnote 42]
Specifically, in one of these states, the NRT found that the state DOT
awarded a majority of its contracts to prime contractors who did not
meet the DBE contract goals, but provided documentation that they made
good faith efforts to do so.[Footnote 43] While DBE regulations allow
state DOTs to award contracts based on bidders' good faith efforts and
do not limit the number of contracts that can be awarded in this way,
FHWA officials explained that awarding a high number of contracts on
the basis of good faith efforts might be a reason state DOTs do not
meet their state DBE goals. To address these concerns, the FHWA
division in this state trained state DOT staff on this issue, tracked
the number of contracts that the state DOT awarded based on good faith
efforts on a monthly basis, and further reviewed the state DOT's
process for evaluating prime contractor good faith efforts to ensure
that the state DOT was complying with the DBE regulations.[Footnote
44] Furthermore, on a nationwide level, FHWA's Office of Civil Rights
increased its training to FHWA's division officials on this issue.
In addition to these steps, FHWA took a number of other actions. For
example, it increased its training on the DBE program for FHWA
division offices. FHWA also increased its focus on the DBE program
during national seminars and conferences. Furthermore, FHWA included
the DBE program, along with other civil rights areas, in its 2011
strategic implementation plan. According to FHWA officials, the
significance of this is that the 2011 plan marked the first time that
civil rights programs, including the DBE program, were given
agencywide attention.
It is too early to determine the effectiveness of the recently
implemented oversight activities described above. But each of the
oversight activities could help FHWA protect against fraud in the DBE
program, ensure that the DBE program is meeting its objectives, and
identify areas where state DOTs may not be in compliance with the
regulations. According to FHWA officials, if they find that a state
DOT has fallen short in meeting any part of the DBE regulations, the
FHWA division will work with the state DOT to bring the state DOT back
into compliance. According to officials at FHWA's Office of Civil
Rights, should a state DOT refuse to comply with any part of the
regulation without seeking a waiver from the Secretary of
Transportation, FHWA would then consider other options, including
withholding federal funds from the state DOT pursuant to regulations.
[Footnote 45], [Footnote 46] For example, one of the divisions we
spoke with said that because of noncompliance with parts of the DBE
regulations, it presented a letter of possible funds withholding to a
state DOT. Subsequently, the state DOT took steps to comply with the
regulations as required.[Footnote 47]
FHWA Faces Fundamental Problems in Its Use of DBE Data:
FHWA faces two fundamental problems with the DBE data it collects from
state DOTs to assess whether state DOTs have met their DBE goals.
First, actual DBE spending data reported by state DOTs cannot be
meaningfully compared to state DOTs' DBE goals to measure whether
goals were met. Second, the proxy data that FHWA uses to measure
whether goals were met--data on committed spending on DBEs--may or may
not be a reasonable proxy of state DOTs' actual spending on DBEs. As a
result, FHWA does not know whether its data on committed spending can
be relied on to evaluate state DOTs' progress in meeting goals or
whether state DOTs would benefit from FHWA assistance to meet their
goals. Also, FHWA's reporting of data on committed spending to
describe progress towards DBE goals does not include statements about
potential limitations of the data--namely that the data on committed
spending on DBEs might not reflect actual spending. Including
statements about the potential limitations of committed spending data
could help FHWA increase transparency in the reporting of DBE spending
data.
FHWA Data on Actual Spending on DBEs Does Not Allow for Comparison to
DBE Goals:
Federal internal control standards call for an agency to track major
achievements, such as spending, and compare these to its goals.
[Footnote 48] FHWA is unable to make this comparison using data on
actual spending on DBEs because the actual spending data that FHWA
collects in the Uniform Reports reflect different time frames and,
therefore, different data from state DOTs' DBE goals.[Footnote 49]
Actual spending data are based on completed contracts--some of which
could have been awarded in previous fiscal years--while a state DOT's
DBE goal reflects what state DOTs will expect to spend on DBEs on
contracts that are awarded or committed in the current fiscal year.
This difference in time frames and when contracts are awarded makes it
difficult to compare the state DOTs' actual spending with its DBE
goals. FHWA officials roughly estimate about 50 percent of contracts
are completed in the fiscal year in which they were awarded. Actual
spending for the remaining estimated 50 percent of contracts cover
multiple years between award and completion, and are not included in
Uniform Reports until these contracts are completed.[Footnote 50]
Without comparing actual spending on DBEs to a state DOT's DBE goals,
FHWA may not be able to effectively track whether a state DOT has met
its DBE goals as called for by internal controls.
FHWA's Use of Committed Spending Data May Not be a Reasonable Proxy:
FHWA uses committed spending on DBEs as a proxy for actual spending on
DBEs to determine if state DOTs are meeting their DBE goals. According
to U.S. DOT officials, FHWA's practice of using committed spending is
a convention necessary to provide timely reporting; if FHWA used
actual spending to determine whether DBE goals were met, it would have
to wait several years for some contracts to be completed. Based on the
committed spending data in the Uniform Reports, about half of the
state DOTs met their DBE goals each fiscal year from fiscal years 2006
through 2010. See appendix III for the number and percentage of state
DOTs meeting their DBE goals from fiscal years 2006 through 2010,
based on committed spending data.
FHWA has not conducted a nationwide analysis comparing committed
spending to actual spending to know whether it is a reasonable proxy
for actual spending. Thus, committed spending on DBEs may or may not
definitively show whether state DOTs met their DBE goals. According to
FHWA and state DOT officials, committed spending could be similar to
actual spending, or it could differ from actual spending.
Specifically, an FHWA headquarters official told us about two cases
where she personally compared committed to actual spending, and found
that the committed spending was close to actual spending. The
headquarters official said that in one of the two cases, she compared
committed to actual spending on individual contracts and in the second
case, she compared committed to actual spending on completed contracts
historically, over a period of time.[Footnote 51] Separately, FHWA and
state DOT officials we contacted said that committed spending could be
lower or higher than actual spending. For example, an FHWA official
from one state we focused on said prime contractors' committed
spending on DBEs may be higher than actual spending on some projects
because of changes to the contract that reduce the amount of work
performed by DBEs. In another state, a state DOT official said a prime
contractor's committed spending on DBEs at the start of a contract may
be 8 percent, but the actual spending on DBEs at the end of the
contract may be only 2 percent. The official said in fiscal year 2008
the state DOT did not meet its fiscal year 2008 DBE goal because the
prime contractor on a highway project spanning multiple years spent
less on DBEs than committed.
FHWA's NRT also found that committed spending may not match actual
spending and thus may not provide a complete picture of whether state
DOTs are meeting their DBE goals. The NRT offered findings and
recommendations to two of the five state DOTs that we contacted during
our review pertaining to the issue of data on committed and actual
spending. For example, the NRT found that one state DOT did not
require a prime contractor to provide information to the state DOT on
actual spending on DBEs if the contractor provides work to a DBE after
the DBE goal on the contract is met. Thus, according to the NRT
report, the state DOT may not accurately capture or report all actual
spending to DBEs, and as a result may spend more on DBEs than
committed. In another state, the NRT recommended that the state DOT
compare committed to actual spending on DBEs on completed DBE
subcontracts to help ensure that the DBE program was compliant at the
project level. Furthermore, in addition to the NRT's findings, the
U.S. DOT Office of Inspector General recommended in another state that
the state DOT capture all actual spending on DBEs regardless of
whether the DBE goal on a contract had already been met.
Without a nationwide analysis comparing committed spending to actual
spending, FHWA cannot be certain whether committed spending reflects
actual spending for DBEs in all state DOTs. Therefore, FHWA does not
know whether its data on committed spending can be relied on to
evaluate state DOTs' progress in meeting goals; hold state DOTs
accountable for meeting their DBE goals, as emphasized in U.S. DOT's
update to its regulations;[Footnote 52] make program decisions based
on whether state DOTs are meeting their DBE goals on an annual basis;
or provide assistance to state DOTs that are not meeting their goals.
Furthermore, if committed spending data on DBEs do not reflect actual
spending on DBEs, then state DOTs might potentially take inappropriate
action or inaction, depending on whether the data show a state DOT has
met its DBE goal. For example, if the data on committed spending show
a state DOT is meeting its goal, it might, as one state DOT said it
does, discontinue setting DBE contract goals, which are DBE goals on
individual U.S. DOT-assisted contracts.[Footnote 53] If the data on
committed spending do not reasonably match actual spending, however,
then the state DOT might stop its use of DBE contract goals
prematurely.
U.S. DOT has a departmentwide working group that, according to a U.S.
DOT official, considers various improvements to the administration of
the DBE program, including improvements to the various reporting forms
used in the DBE program. As part of its efforts, this working group is
considering revising the form--the Uniform Report--that state DOTs use
to report committed and actual spending on DBEs.[Footnote 54] In
February 2011, the members reviewing the Uniform Report held their
first meeting but did not determine what changes to recommend. This
working group could provide an opportunity for FHWA to identify
options it can use to evaluate whether the committed spending data it
uses to determine if state DOTs have met their DBE goals is a
reasonable proxy for actual spending and whether this data can be
relied on to measure progress towards goals. For example, on a
nationwide basis, FHWA could compare committed to actual spending--
using historical data on committed and actual spending on completed
contracts--to determine whether committed spending reflects actual
spending on DBEs.
Reporting of Committed Spending Does Not Include Statements about
Potential Limitations:
We have previously reported that while no data are perfect, agencies
need to report any limitations of performance data to provide
transparent information on government operations so that decision
makers, such as members or committees of Congress and program
managers, can use the information appropriately.[Footnote 55] In
addition, recent initiatives, such as a June 2011 Executive Order on
accountable government[Footnote 56] and the GPRA Modernization Act of
2010 (GPRAMA)[Footnote 57] have placed increased emphasis on
transparency, including enhancing the transparency of federal
spending. Transparency of DBE spending data is important because it
helps stakeholders oversee and monitor progress of the DBE program.
However, FHWA's reporting of data on committed spending to describe
progress towards DBE goals does not include statements about potential
limitations of the data--namely that the data on committed spending on
DBEs might not reflect actual spending. For example, in a March 2009
hearing on the DBE program,[Footnote 58] U.S. DOT reported to the
House of Representatives Committee on Transportation and
Infrastructure that DBEs were awarded $3.3 billion in contracts,
representing more than 11 percent of the total federal amount provided
through U.S. DOT-assisted contracts in fiscal year 2008.[Footnote 59],
[Footnote 60] In this example, U.S. DOT did not explicitly state that
"awarded contracts" (committed spending) might not be the same as
actual spending, and that it was using "awarded contracts" as a
convention to facilitate reporting. Including statements about
potential limitations of committed spending data in the information it
provides to decision makers, including Congress, could help FHWA
increase transparency in the reporting of DBE spending data.
FHWA Oversight of Certifying Organizations:
U.S. DOT and three of its operating administrations--FHWA, FTA, and
FAA--oversee, review, and monitor the certification activities of all
the organizations that certify DBEs in a state.[Footnote 61] Officials
we interviewed from U.S. DOT's and FHWA's Offices of Civil Rights
described an oversight approach in which the oversight of the
certification activities of the organizations that certify DBEs is
delegated to one of the administrations--depending on which
administration provides federal funding to the organization.[Footnote
62] For example, FHWA is responsible for overseeing the certification
activities of state DOTs--which primarily certify DBEs that work on
highway projects--because these state DOTs receive federal-aid highway
funds. FTA and FAA are responsible for overseeing certifying
organizations, such as state transit agencies and local airport
authorities, that receive federal transit and aviation funds,
respectively. Defining roles and responsibilities in this way can help
federal agencies effectively oversee programs, particularly when
multiple federal entities are involved in oversight.[Footnote 63] In
addition to FHWA's, FAA's, and FTA's responsibilities for
certification oversight, officials from U.S. DOT's Office of Civil
Rights said that their role, prior to the 2011 update to the DBE
regulations, was and continues to be to review and make decisions on
DBE certification appeals.[Footnote 64] According to officials, under
the updated DBE regulations that went into effect in February 2011,
U.S. DOT's Office of Civil Rights will have additional
responsibilities to enforce and oversee DBE certifications.[Footnote
65]
FHWA officials we interviewed said that their responsibilities for
overseeing state DOT DBE programs included overseeing the state DOTs'
certification activities. As discussed earlier in this report, FHWA
oversees state DOTs' implementation of the DBE program--including how
state DOT's certify DBEs--using risk assessments and program reviews.
For example, in conducting their annual risk assessments, FHWA's
Office of Civil Rights and FHWA division offices consider risks
related to the DBE program, including how state DOTs certify DBEs.
Furthermore, in the 2010 and 2011 program reviews, FHWA division
offices assessed whether state DOTs were following U.S. DOT's
regulatory eligibility requirements and certification procedures when
they certified DBEs. In addition to these activities, U.S. DOT's
Inspector General's Office (IG) has a role in overseeing DBE
certifications. In April 2011, the IG announced that it would conduct
an audit of the DBE program, and officials from the IG indicated that
they plan to review certifications of DBEs as part of this audit.
In addition to risk assessments and program reviews, all five FHWA
division offices we focused on conducted additional oversight
activities to oversee the certification activities of state DOTs. As
is the case with the oversight of other aspects of the DBE program and
other federal-aid highway programs, FHWA divisions use their
discretion to determine how much and how often to carry out these
additional oversight activities. For example, one FHWA division
participates in annual reviews of the state's DBE certification
processes, procedures, and activities--which includes conducting spot-
checks of selected certification files and interviewing personnel
engaged in managing, supervising, and performing certification
activities.[Footnote 66] Another division official said that because
DBE certifications are not a high-risk area in his state, he oversees
the state DOT's certification activities when there are questions or
concerns with a specific certification decision.
Furthermore, FHWA officials in three of the four states that have
multiple certifying organizations said that they rely on FAA and FTA
to oversee the certification activities of organizations other than
the state DOT (such as transit agencies and airport
authorities).[Footnote 67] FTA's and FAA's oversight of these
organizations is relevant for federal-aid highway projects because
these organizations certify DBEs that can work on highway projects.
For example, officials from one certifying organization we interviewed
said that while it is a transit agency, about 40 percent of the DBEs
it certifies could work on transit projects as well as other types of
projects, such as highway projects, because the skills needed for
transit and highway projects are similar. According to U.S. DOT
officials, it is common for a DBE to work on more than one type of
project, such as on airport and highway projects. In general, FAA and
FTA officials we obtained information from said that they conduct
compliance reviews to oversee the certification activities of these
other organizations. See appendix IV for more information on the
actions FAA and FTA take to oversee the certification activities of
the organizations they are responsible for overseeing.
Conclusions:
U.S. DOT's DBE program has existed for more than 30 years and provided
billions of dollars to DBEs across the country. FHWA's oversight of
how state DOTs implement their DBE programs is critical for ensuring
that the programs are implemented according to U.S. DOT's DBE
regulations. FHWA has taken several steps, some of which have been
recently implemented, which could help ensure state DOTs' compliance
with DBE regulations. However, FHWA faces fundamental problems in the
data it uses to oversee DBE participation. Knowing whether a program
is meeting its goals and ensuring that data accurately reflects
federal dollars spent is a primary responsibility of oversight.
Without addressing its fundamental data problems, FHWA cannot
effectively make program decisions and implement DBE regulations. For
example, if the extent to which state DOTs are meeting their goals is
unclear, FHWA will not be able to effectively hold state DOTs
accountable for meeting their DBE goals, as emphasized in U.S. DOT's
update to its regulations. Further, without addressing its data
problems, FHWA cannot be sure that the data that shows that about half
of the state DOTs are meeting their DBE goals from fiscal years 2006
through 2010 is accurate. U.S. DOT's working group that considers
various improvements to the administration of the DBE program provides
FHWA with an opportunity to identify options it can use to evaluate
whether the committed spending data it uses to determine if state DOTs
have met their DBE goals is a reasonable proxy for actual spending and
whether this data can be relied on to measure progress towards goals.
Additionally, including statements about the potential limitations of
committed spending data in information it provides to decision makers
could help FHWA increase transparency in the reporting of DBE spending
data.
Recommendations for Executive Action:
To know whether its data on committed spending can be relied on to
determine state DOTs' progress in meeting goals, to enhance FHWA's
ability to know whether state DOTs meet their DBE goals, and to help
increase transparency in the reporting of spending on DBEs, the
Secretary of Transportation should direct the FHWA Administrator to
take the following two actions:
1. Evaluate whether its committed spending data is a reasonable proxy
for determining whether state DOTs are meeting their DBE goals.
2. In the information it provides to decision makers, including
Congress, include statements about potential limitations of the data
it uses to determine state DOTs' progress towards goals.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Department of Transportation
for review and comment. We received e-mail and oral comments on the
draft report from U.S. DOT through the department's liaison. Our draft
report recommended that (1) FHWA identify and use data that are
reliable and accurately reflect whether state DOTs have met their DBE
goals, and (2) FHWA clearly note in reports to decision makers,
including Congress, that FHWA's data might not represent actual DBE
spending until FHWA identifies and uses reliable data. U.S. DOT's
comments on our draft recommendations covered two broad areas: the
reliability of committed spending data and data limitations.
Specifically, U.S. DOT commented that the committed spending data that
FHWA is using is the most reliable and accurate data available to
determine on a timely basis whether state DOTs are meeting their DBE
goals. U.S. DOT also commented that the information presented in our
report on committed spending does not relate to the reliability of the
committed spending data but rather relates to the reporting of these
data. However, as stated in our report, FHWA may or may not be able to
rely on committed spending data to measure progress towards goals
because FHWA does not know whether committed spending is a reasonable
proxy for actual spending. We clarified our first recommendation to
better reflect the need for FHWA to evaluate if the proxy data can be
relied on to determine whether state DOTs are meeting their DBE goals.
U.S. DOT agreed to consider our modified recommendation. Regarding the
second recommendation, U.S. DOT officials commented that ensuring that
the appropriate methodological disclosures are included in their
reporting was not enough of an issue to warrant a recommendation. As
we note in our report, including statements about the potential
limitations of spending data is important because it improves
transparency of the data so that decision makers can oversee and
monitor progress of the DBE program appropriately. Consequently, we
retained this recommendation with slightly revised language. U.S. DOT
officials noted that they would re-evaluate their disclosures with
regard to the data used to determine if DBE goals are met. Finally,
U.S. DOT provided technical comments, which we incorporated as
appropriate throughout the report.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the U.S.
Department of Transportation and other interested parties. In
addition, the report is available at no charge on the GAO website at
[hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-2834 or stjamesl@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made key contributions
to this report are listed in appendix V.
Sincerely yours,
Signed by:
Lorelei St. James:
Director, Physical Infrastructure Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This report focuses on the Federal Highway Administration's (FHWA)
oversight of the U.S. Department of Transportation's (DOT)
Disadvantaged Business Enterprise (DBE) program on federally assisted
highway projects.[Footnote 68] Specifically, the objectives of this
report were to examine how FHWA (1) oversees state DOTs to ensure that
they are implementing their DBE programs in accordance with applicable
regulations, (2) assesses whether state DOTs have met their DBE goals,
and (3) oversees organizations that certify DBEs that work on federal-
aid highway projects.
To address all three of our objectives, we reviewed relevant laws,
regulations, U.S. DOT and FHWA documents on the DBE program, and GAO
and other reports. Specifically, we reviewed the Safe, Accountable,
Flexible, Efficient Transportation Equity Act:A Legacy for Users
(SAFETEA-LU)[Footnote 69] and other relevant legislation, such as the
Surface Transportation Assistance Act of 1982 (STAA),[Footnote 70]
which authorized U.S. DOT's DBE program. In addition, we reviewed the
GPRA Modernization Act of 2010 (GPRAMA)[Footnote 71] and Executive
Order 13576 on delivering an efficient, effective, and accountable
government.[Footnote 72] We also reviewed U.S. DOT's regulations on
the DBE program that describe state DOTs' requirements for
implementing the DBE program, as well as proposed and final rules that
U.S. DOT published in the Federal Register which recently amended DBE
regulations.[Footnote 73] We also reviewed and analyzed U.S. DOT, FHWA
Office of Civil Rights, and FHWA division office documents on the DBE
program, including procedures and guidance on DBE goals,
certifications, DBE program implementation, and oversight of the DBE
program. Furthermore, we reviewed and analyzed prior GAO reports and
other reports on the DBE program, oversight, and accountability in the
federal government, including GAO standards and guidance on internal
controls. We used some of these reports to assess FHWA's oversight of
the DBE program.
Furthermore, we conducted semistructured interviews on topics related
to our objectives. In particular, we reviewed documentation and
interviewed officials from U.S. DOT and FHWA in headquarters,
including officials from U.S. DOT's Office of General Counsel, U.S.
DOT's Office of Civil Rights, and FHWA's Office of Civil Rights. In
addition, we conducted semistructured interviews with representatives
from associations, including the American Association of State Highway
and Transportation Officials, Associated General Contractors of
America, American Road & Transportation Builders Association,
Conference of Minority Transportation Officials, and National
Association of Minority Contractors. We interviewed officials from
these associations because they are national associations
knowledgeable about the DBE program, and because these national
associations represent various stakeholders involved in the DBE
program, such as state DOT officials and contractors. We also reviewed
documentation from and interviewed officials in five states: Florida,
Minnesota, Missouri, Washington, and Wisconsin.[Footnote 74] We
judgmentally selected these states to obtain variation in geographic
location, state population, state DOT use of race-conscious and/or
race-neutral methods to meet DBE goals, whether state DOTs met their
overall DBE goals, and number of certifying organizations within the
states. We also considered whether the state used a disparity study to
determine its DBE participation goal,[Footnote 75] whether the state
was involved in litigation regarding the DBE program, whether the
state was located within the jurisdiction of the U.S. Court of Appeals
for the Ninth Circuit,[Footnote 76] and recommendations from
stakeholders who are familiar with the DBE program. We visited Florida
because it was the only state mentioned by stakeholders that met its
goal by using only race-neutral methods. In each of the selected
states, we interviewed FHWA division officials and state DOT Civil
Rights and DBE Program managers. Finally, in Florida, Wisconsin, and
Washington, we interviewed prime contractors and DBE firms, or
organizations in the state that represented the DBE firms.
In addition to these efforts, to describe how FHWA oversees state DOT
DBE programs to ensure that the state DOTs are complying with DBE
regulations, we reviewed and analyzed information related to FHWA's
oversight activities.[Footnote 77] For example, we obtained and
reviewed documentation from FHWA's Office of Civil Rights and FHWA
divisions on FHWA's risk assessment process and DBE program reviews.
We also conducted semistructured interviews with the National Review
Team (NRT) that FHWA established to assess DBE program implementation
on Recovery Act projects.[Footnote 78] We also reviewed the findings
of the NRT's review, which provided a programmatic assessment of
oversight at a national level while also providing insights for the
specific states we selected for this review. We also reviewed the
Action Plans from our five selected states to see how those divisions
explained how they oversee state DOT DBE programs.
To determine how FHWA assesses whether state DOTs have met their DBE
goals, we reviewed and analyzed FHWA's national data on state DOTs'
committed and actual spending and how FHWA determined whether state
DOTs achieved their DBE goals over a 5-year period (fiscal years 2006
through 2010) for state DOTs in all 50 states, the District of
Columbia, and Puerto Rico.[Footnote 79] FHWA officials said they
compiled the national data from state DOTs' Uniform Report of DBE
Awards or Commitments and Payments (commonly referred to as the
Uniform Report). To help ensure the accuracy of the national data, we
conducted selected quality checks of the data and we discussed and
resolved any inconsistencies in the data we identified with the
appropriate agency officials. We also compared FHWA's national data to
the data in the Uniform Reports for the five state DOTs that we
contacted, and resolved inconsistencies with FHWA and the state DOTs.
Given our review of the data provided to us by FHWA, we identified
problems with the data FHWA uses to assess whether state DOTs achieved
their DBE goals. These issues are discussed in this report. Even so,
our review of FHWA's national data provided us with a perspective on
how FHWA compiled and used these data. Additionally, because data on
actual spending on DBEs cannot be used to determine if state DOTs met
their DBE goals, in appendix III, we determined the number and
percentage of state DOTs meeting overall DBE goals based on committed
spending data on DBEs for all state DOTs to illustrate orders of
magnitude. We did not evaluate the appropriateness of the state DOT
DBE goals.
Finally, to determine how FHWA oversees organizations that certify
DBEs, we obtained information or interviewed officials from U.S. DOT's
and FHWA's Offices of Civil Rights, and the Federal Aviation
Administration's (FAA) and Federal Transit Administration's (FTA)
Offices of Civil Rights. Although our report focuses on FHWA's
oversight of the DBE program, we obtained information from officials
at FAA and interviewed an official from FTA since DBEs can be
certified to work on highway, airport, and transit projects, and since
FAA and FTA, in addition to FHWA, can be involved in overseeing the
certifications of DBEs that work on federal-aid highway projects. We
did not examine FAA's or FTA's oversight of the DBE program on
federally funded airport and transit projects, or airport concessions
contracts. We reviewed how FHWA oversaw the certification activities
of the organizations in the state. In addition, in each of the states
selected, we interviewed state or local officials from at least two
organizations that certify DBEs within each state, if such existed--
such as state transit agencies and local airport authorities. We
judgmentally selected the certifying organizations based on their
geographic location, whether they certified DBEs that work on highway
projects, and whether the organization was a state DOT.
We conducted this performance audit from September 2010 to October
2011 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Summary of Key DBE Regulatory Eligibility Requirements:
To be a Disadvantaged Business Enterprise (DBE), firms must meet
certain regulatory eligibility requirements concerning socially and
economically disadvantaged status, business size, ownership, and
control. Table 1 summarizes the key elements of each of the
eligibility requirements.
Table 1: Summary of Key DBE Eligibility Requirements:
Eligibility requirement: Socially and economically disadvantaged
status;
Key elements of eligibility requirement: Each owner of the firm must
be socially and economically disadvantaged. Members of the following
groups are presumed to be socially and economically disadvantaged,
unless proven otherwise: Black Americans, Hispanic Americans, Native
Americans, Asian-Pacific Americans, Subcontinent Asian Americans,
women, or other groups as designated by the U.S. Small Business
Administration (SBA). Furthermore, each owner of the firm must have a
personal net worth that does not exceed $1.32 million.[A]
Eligibility requirement: Business size;
Key elements of eligibility requirement: Each DBE firm must be an
existing small business as defined by SBA size standards,[B] and each
fiscal year cannot have average annual gross receipts over the 3
previous fiscal years that exceed the small business size cap
associated with the type of work it performs and in no case may exceed
an overall U.S. Department of Transportation-specific cap (currently
$22.41 million).[C]
Eligibility requirement: Ownership;
Key elements of eligibility requirement: A DBE firm must be at least
51 percent owned by socially and economically disadvantaged
individuals.[D]
Eligibility requirement: Control;
Key elements of eligibility requirement: A DBE owner must possess the
power to control the management and policies of the firm, and make day-
to-day and long-term decisions on the firm's management, policy, and
operations. A DBE firm must not be subject to any restrictions (e.g.,
corporate charter provisions or voting powers attached to different
classes of stock) that would limit the socially and economically
disadvantaged owners from making any business decisions of the firm.
Any delegations of authority must be revocable. Additionally, the DBE
firm must be an independent business, meaning that the viability of
the business cannot depend on its relationship with another firm or
firms. Furthermore, a DBE owner must have managerial and technical
competence and experience directly related to the type of business in
which the firm is engaged and the firm's operations. And finally, a
DBE owner cannot engage in outside employment or other business that
conflicts with the management of the firm or prevent sufficient time
to be devoted to the firm.[E]
Source: GAO Summary of eligibility requirements in 49 C.F.R. part 26.
[A] 49 C.F.R. §§ 26.61, 26.67. See 49 C.F.R. appendix E. Firms owned
and controlled by those who are not presumed to be socially and
economically disadvantaged (including individuals whose presumed
disadvantaged has been rebutted) may qualify for the program if the
owner can demonstrate, by a preponderance of the evidence, social and
economic disadvantage. However, no individual whose personal net worth
exceeds $1.32 million may be considered economically disadvantaged.
Id. In February 2011, U.S. DOT increased the personal net worth cap
from $750,000 to $1.31 million. 76 Fed. Reg. 5083 (Jan. 2011).
[B] 13 C.F.R. part 121.
[C] 49 C.F.R. § 26.65.
[D] 49 C.F.R. § 26.69(b).
[E] 49 C.F.R. § 26.71.
[End of table]
[End of section]
Appendix III: Number and Percentage of State DOTs Meeting DBE Goals
Based on Committed Spending Data from Uniform Reports, Fiscal Years
2006 through 2010:
The U.S. Department of Transportation's (DOT) Disadvantaged Business
Enterprise (DBE) regulations require that each state DOT set an annual
goal for DBE participation in federal-aid highway projects, expressed
as the percent of federal-aid highway funds it will expect to spend on
DBEs for contracts that are awarded or committed in a fiscal year. The
regulations also require that all state DOTs report to the Federal
Highway Administration (FHWA) the total amount of federal funds they
commit to spend on DBEs using a form called the Uniform Report of DBE
Awards or Commitments and Payments (commonly referred to as the
Uniform Report). FHWA uses this data on committed spending on DBEs to
determine whether state DOTs are meeting their DBE goals each fiscal
year. Based on the committed spending data in the Uniform Reports,
about half of the state DOTs met their DBE goals each fiscal year from
fiscal years 2006 through 2010. See table 2.
Table 2: Number and Percentage of State DOTs Meeting DBE Goals Based
on Committed Spending Data from Uniform Reports, Fiscal Years 2006
through 2010:
Fiscal year: 2006;
Number of state DOTs that met their DBE goal: 23;
Percentage of state DOTs that met their DBE goal: 44%.
Fiscal year: 2007;
Number of state DOTs that met their DBE goal: 24;
Percentage of state DOTs that met their DBE goal: 46%.
Fiscal year: 2008;
Number of state DOTs that met their DBE goal: 19;
Percentage of state DOTs that met their DBE goal: 37%.
Fiscal year: 2009;
Number of state DOTs that met their DBE goal: 19;
Percentage of state DOTs that met their DBE goal: 37%.
Fiscal year: 2010;
Number of state DOTs that met their DBE goal: 24;
Percentage of state DOTs that met their DBE goal: 46%.
Source: GAO analysis of FHWA data.
[End of table]
[End of section]
Appendix IV: How FAA and FTA Oversee the Certifying Organizations for
Which They Are Responsible:
The Federal Aviation Administration (FAA) and the Federal Transit
Administration (FTA) oversee the certification activities of
organizations they provide funding to, such as airport and transit
organizations. While this report does not focus on these
administrations' oversight of Disadvantaged Business Enterprise (DBE)
certifications, we obtained information from officials at FAA and
interviewed an FTA official to obtain a general understanding of their
involvement in overseeing DBE certifications. Some of their oversight
activities are described in the following sections.
FAA:
FAA officials said that they oversee the certification activities of
airport authorities when they conduct compliance reviews of these
authorities. These compliance reviews can include an analysis of an
airport authority's responsibilities for DBE certifications or the
airport authority's capacity as a certifying organization. FAA
officials also indicated that they may also ask the airport
authorities and other certifying organizations in the state to review
particular certification decisions or procedure as a result of a
complaint, investigation, compliance review, U.S. Department of
Transportation Office of Inspector General finding, or court
determination.
FTA:
An FTA official we interviewed explained that although FTA usually
does not oversee the certification activities of any organizations
that certify DBEs, including certification decisions made by transit
agencies, it provides technical assistance to the organizations on
certification issues.[Footnote 80] In addition, FTA reviews the DBE
program during its triennial reviews[Footnote 81] and, when funding is
available, conducts certification compliance reviews. In 2009, FTA
began conducting compliance reviews of each state's certification
procedures and standards to ensure that their activities align with
the U.S. Department of Transportation's DBE regulations on
certifications. According to an FTA official, FTA has completed
between six to ten certification compliance reviews to date and has
plans to conduct more reviews in subsequent years.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Lorelei St. James at (202) 512-2834 or at stjamesl@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Catherine Colwell, Assistant
Director; Lauren Calhoun; Colin Fallon; Roshni Davé; Peter Del Toro;
Leia Dickerson; Joseph Fread; Sara Ann W. Moessbauer; Josh Ormond;
Lisa Shibata; and Sandra Sokol made key contributions to this report.
[End of section]
Footnotes:
[1] U.S. DOT-assisted contract means any contract between a recipient
(such as a state DOT) and a contractor (at any tier, e.g., prime-or
sub-contractor) funded in whole or in part with U.S. DOT financial
assistance, including letters of credit or loan guarantees, except a
contract solely for the purchase of land. 49 C.F.R. § 26.5.
[2] For example, recipients of any of the following types of highway
funds are required to implement a DBE program: federal-aid highway
funds authorized for surface transportation, with certain exceptions,
and intermodal transportation under the Intermodal Surface
Transportation Efficiency Act of 1991, and federal-aid highway funds
authorized for highways and transportation research under the
Transportation Equity Act for the 21st Century. Pub. L. No. 102-240,
105 Stat. 1914; Pub. L. No. 105-178, 112 Stat. 107. See 49 C.F.R. §
26.3.
[3] Federal-aid highway funds are authorized by Congress to assist the
states in providing for construction, reconstruction, and improvement
of highways and bridges on eligible federal-aid highway routes and for
other special purpose programs and projects.
[4] 23 U.S.C. § 101 note, 49 C.F.R. part 26. FAA and FTA are
responsible for overseeing DBE programs implemented by recipients of
federal-aid airport and transit funds, respectively. This report
focuses on FHWA's oversight of DBE programs implemented by recipients
of federal highway funds, which are primarily state DOTs. For this
report, we use the term "state DOTs" to refer to state DOTs in all 50
states, the District of Columbia, and Puerto Rico. According to FHWA
officials, each state should only have one DBE program--the state
DOT's DBE program--for highway funds. State DOTs may pass federal
highway funds to subrecipients (i.e., local jurisdictions).
[5] Since these states were selected as a nonprobability sample, the
information we gathered from officials in these states cannot be
generalized to all states. The examples we use throughout this report
are included for illustrative purposes.
[6] GAO, Standards for Internal Control in the Federal Government,
[hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]
(Washington, D.C.: November 1999).
[7] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[8] Although the NRT's review focused on Recovery Act projects, the
data and analyses gathered by the team were useful for our review
because DBE requirements are the same for Recovery and non-Recovery
Act projects.
[9] We did not evaluate the appropriateness of the state DOT DBE goals.
[10] The program was first established under the authority of Title VI
of the Civil Rights Act of 1964 and other nondiscrimination statutes
that apply to U.S. DOT financial assistance programs.
[11] Pub. L. No. 97-424, § 105(f), 96 Stat. 2097, 2100 (1983), as
amended at 23 U.S.C. § 101 note. U.S. DOT's regulations on the DBE
program state that the statutory 10 percent goal is an aspirational
goal, meaning that state DOTs and other recipients of certain federal
transportation funds are not authorized or required to set overall or
contract goals at the 10 percent level, or any other particular level,
or to take any special administrative steps if their goals are above
or below 10 percent. According to the regulations, the 10 percent goal
is merely a means for U.S. DOT to evaluate the overall performance of
the DBE program nationwide. 49 C.F.R. § 26.41.
[12] Pub. L. No. 109-59, § 1101(b), 119 Stat. 1144, 1156 (2005), as
amended at 23 U.S.C. § 101 note.
[13] 49 C.F.R. §§ 26.3, 26.101. U.S. DOT's DBE regulations are
contained at 49 C.F.R. part 26.
[14] Unlike prime contracts that are awarded, subcontracts can either
be awarded or committed. In general, state DOTs award contracts to
prime contractors, which may be DBEs, and prime contractors award
subcontracts to DBE subcontractors, or commit to provide funds to DBE
subcontractors. See 49 C.F.R. part 26, appendix B.
[15] 49 C.F.R. § 26.45(b).
[16] 49 C.F.R. § 26.45(g).
[17] In addition, according to U.S. DOT officials, as part of its
internal review process, FHWA also conducts legal sufficiency reviews
of the decisions it makes regarding the methodologies and processes
state DOTs use to establish their goals.
[18] 49 C.F.R. § 26.51(d). State DOTs must meet as much of their DBE
participation goal as possible using race-neutral methods--actions
that assist all small businesses without consideration of DBE status.
When a state cannot achieve its goal using race-neutral methods, it
must use race-conscious methods--actions used to assist only DBEs--to
meet the remaining portion of the goal. The primary race-conscious
method is setting contract goals on individual U.S. DOT-assisted
contracts. 49 C.F.R. § 26.51. See also 49 C.F.R. § 26.5. According to
FHWA officials, most states use a combination of race-neutral and race-
conscious methods to meet their state goals.
[19] FHWA approval of each contract goal is not necessarily required;
however, FHWA may review and approve or disapprove any contract goal
established. 49 C.F.R. § 26.51(e)(3).
[20] 49 C.F.R. § 26.53. See 49 C.F.R. part 26, appendix A, I.
[21] 49 C.F.R. § 26.53(a). See also 49 C.F.R. part 26, appendix A. In
addition, according to U.S. DOT, bidders who meet only a portion of
the contract goal must document good faith efforts for the portion of
the goal not met.
[22] According to FHWA, subrecipients of federal highway funds, such
as local jurisdictions, should report the total amount of federal
funds they commit to and actually spend on DBEs to the state DOT for
inclusion in the state DOT's Uniform Report.
[23] State DOTs award contracts to prime contractors, which may be
DBEs, and prime contractors award subcontracts to DBE subcontractors,
or commit to provide funds to DBE subcontractors. For each reporting
period, the DBE regulations require state DOTs to provide data on the
total amount of federal funds that are awarded to DBEs on U.S. DOT-
assisted prime contracts, and the total amount of federal funds that
are awarded or committed to DBEs on U.S. DOT-assisted subcontracts. 49
C.F.R. part 26, appendix B. Although applicable regulations refer to
this as "Awards/Commitments," for purposes of this report, we refer to
this as "committed spending" or "committed spending on DBEs."
[24] To determine committed spending on DBEs for the entire fiscal
year, FHWA combines the committed spending data from both reporting
periods, or some state DOTs provide FHWA committed spending data for
the entire fiscal year in the report they submit on December 1.
[25] Ongoing contracts means contracts that were awarded in the fiscal
year but will not be completed in the fiscal year.
[26] We have previously reported that according to FHWA, the
construction of major projects takes 2 to 6 years to complete once a
contract is awarded. GAO, Federal-Aid Highways: Federal Requirements
for Highways May Influence Funding Decisions and Create Challenges,
but Benefits and Costs Are Not Tracked, [hyperlink,
http://www.gao.gov/products/GAO-09-36] (Washington, D.C.: Dec. 12,
2008).
[27] For each reporting period, the DBE regulations require state DOTs
to provide data on the total actual payments that they made to DBEs
using federal funds on prime contracts that are completed in the
reporting period. 49 C.F.R. part 26, appendix B. Although applicable
regulations refer to this as "Actual Payments," for purposes of this
report, we refer to this as "actual spending" or "actual spending on
DBEs". To determine actual spending on DBEs for the entire fiscal
year, FHWA would combine the actual spending data from both reporting
periods, or some state DOTs provide FHWA actual spending data for the
entire fiscal year in the report they submit on December 1.
[28] See 49 C.F.R. part 26, subparts D, E.
[29] 49 C.F.R. § 26.5.
[30] According to U.S. DOT officials, the number of certified DBEs
could include duplicates--when a DBE firm is certified in more than
one state or when a firm is certified to conduct both highway and
airport work.
[31] Each state's unified approach to certification is described in an
agreement between all the organizations that receive U.S. DOT funds in
the state. This agreement establishes a state's Unified Certification
Program (or UCP), commits the certifying organization(s) to follow DBE
certification regulations, and describes the certification
responsibilities of the organization(s) that certify DBEs in the
state. For example in one state, each of the three certifying
organizations are responsible for processing DBE certification
applications, but the organizations collectively decide whether to
certify a firm as a DBE. In another state, each of the certifying
organizations process DBE certification applications but each
independently decides whether to certify a firm as a DBE.
[32] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[33] In 2009, we concluded that FHWA had strengthened its oversight of
its programs by improving its risk management approach. GAO, Federal-
Aid Highways: FHWA Has Improved Its Risk Management Approach, but
Needs to Improve Its Oversight of Project Costs, [hyperlink,
http://www.gao.gov/products/GAO-09-751] (Washington D.C.: July 24,
2009).
[34] When conducting these risk assessments, FHWA identifies risks by
taking into consideration many different sources of information,
including the results of audits, such as Inspector General audits, and
trends or changes.
[35] At the time of this review, FHWA had not identified its
agencywide risks for 2011.
[36] This division official said that when he noticed such problems,
he worked with the state DOT to establish more realistic contract
goals as needed.
[37] According to FHWA officials, the DBE program reviews are not
compliance reviews, but rather an information-gathering exercise so
that FHWA can determine how to focus its oversight and assistance
efforts.
[38] In addition, FHWA's Office of Civil Rights decided to conduct the
program reviews every 3 years going forward.
[39] 49 C.F.R. § 26.47(c).
[40] In addition to these requirements, U.S. DOT incorporated
additional requirements in its January 2011 update to the DBE
regulations, some of which have implementation dates after February
2011.
[41] The other risk areas are preliminary plans, specifications, and
estimates; contract administration; quality assurance of construction
materials; local public agencies; and eligibility for payments.
[42] When a state DOT sets DBE contract goals on individual U.S. DOT-
assisted prime contracts, bidders are required to make good faith
efforts to meet those set goals. 49 C.F.R. § 26.53(a). State DOTs are
responsible for evaluating whether a bidder that did not meet its goal
made adequate good faith efforts. DBE regulations provide state DOTs
with guidance on the types of actions state DOTs can consider when
conducting their evaluations.
[43] According to DBE regulations, prime contracts can be awarded to
bidders even if the bidders do not meet the contract goals as long as
the bidders can show documentation that they made adequate good faith
efforts to do so, meaning that they took all the necessary and
reasonable steps to achieve the contract goal. 49 C.F.R. § 26.53(a),
appendix A.
[44] In its review, the FHWA division office found that the state DOT
did not critically evaluate the documentation that the prime
contractors submitted to the state DOT showing the actions the
contractors had made to meet the contract goals. As a result of the
review, the FHWA division office recommended that the state DOT, among
other things, develop training for prime contractors on the
documentation the contractors should provide to the state DOT to show
good faith efforts.
[45] 49 C.F.R. § 26.101(a). See also 49 C.F.R. § 26.103.
[46] We have previously reported that officials of U.S. DOT's
administrations rarely use available enforcement options--such as
withholding federal funds and imposing civil penalties--because the
options are too drastic or lengthy to bring about compliance. GAO,
Transportation Accessibility: Lack of Data and Limited Enforcement
Options Limit Federal Oversight, [hyperlink,
http://www.gao.gov/products/GAO-07-1126] (Washington, D.C.: Sept. 19,
2007).
[47] States are required to implement their DBE programs in good
faith. 49 C.F.R. § 26.47(b). According to FHWA's Office of Civil
Rights officials, a state DOT is operating its program in good faith
if the state DOT is using "good faith efforts" to comply with DBE
regulations. In situations when a state DOT is not complying with a
specific regulatory requirement, the state DOT will still be operating
its program in good faith if the state DOT uses its best efforts to
come into compliance with the regulations with the assistance of FHWA.
[48] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1].
[49] U.S. DOT's DBE regulations require state DOTs to report actual
spending on DBEs on completed contracts in the Uniform Reports. The
regulations also require state DOTs to track, but not report to FHWA,
actual spending on all contracts (i.e., completed and ongoing). 49
C.F.R. § 26.37(c). State DOTs can use this data to monitor payments
made to DBE firms during the course of a contract.
[50] The actual spending data on such multi-year contracts would be
included in the Uniform Report for the reporting period in which the
contract is completed. See 49 C.F.R. part 26, appendix B.
[51] In the first case, the FHWA headquarters official compared the
committed to actual spending when she worked for a state DOT.
[52] To increase state DOTs' accountability for meeting overall DBE
goals, among other things, U.S. DOT updated its DBE regulations to
require state DOTs to analyze the reason for any differences between
their DBE goals and committed spending on DBEs for that fiscal year.
[53] To help state DOTs meet their DBE goals, state DOTs can take
various actions, including setting DBE goals on individual U.S. DOT-
assisted contracts. The DBE regulations state that if a state DOT
determines that it will exceed its DBE goal, the state DOT must reduce
or eliminate the use of contract goals to the extent necessary to
ensure that the use of contract goals does not result in exceeding its
state DOT DBE goal. 49 C.F.R. § 26.51(f)(2).
[54] According to this U.S. DOT official, improvements related to the
Uniform Report are being considered for inclusion in a Notice of
Improved Rulemaking to further improve DBE program administration.
[55] GAO, Performance Reporting: Few Agencies Reported on the
Completeness and Reliability of Performance Data, [hyperlink,
http://www.gao.gov/products/GAO-02-372] (Washington D.C.: Apr. 26,
2002).
[56] Exec. Order No. 13576, 76 Fed. Reg. 35297 (June 16, 2011).
[57] Pub. L. No. 111-352, 124 Stat. 3866 (2011). GPRAMA was enacted in
January 2011 and amends the Government Performance and Results Act of
1993, Pub. L. No. 103-62, 107 Stat. 285 (1993). Specifically, GPRAMA
requires U.S. DOT and other federal agencies to disclose more
information about the accuracy and validity of performance information
(by Feb. 27, 2012), including the sources for their data and actions
to address limitations of the data. For more information about GPRAMA,
see GAO, Managing for Results: GPRA Modernization Act Implementation
Provides Important Opportunities to Address Government Challenges,
[hyperlink, http://www.gao.gov/products/GAO-11-617T] (Washington,
D.C.: May 10, 2011).
[58] U.S. DOT's Disadvantaged Business Enterprise Program, Hearing
Before the Committee on Transportation and Infrastructure, House of
Representatives, March 26, 2009.
[59] The $3.3 billion reflects awards to DBEs performing work on all
U.S. DOT-assisted contracts (i.e., FHWA-, FAA-, and FTA-assisted
contracts). Although the $3.3 billion is for all U.S. DOT-assisted
contracts, this dollar amount is relevant for our report--which
focuses on only FHWA--because it includes awards to DBEs on FHWA-
assisted contracts.
[60] 23 U.S.C. § 101 requires that U.S. DOT expend at least 10 percent
of specified U.S. DOT-assisted funds on DBEs, unless the Secretary of
Transportation determines otherwise.
[61] Some states have multiple organizations within the state--such as
state DOTs, state and local transit agencies, and local airport
authorities--that certify DBEs.
[62] In cases where a certifying organization receives funding from
more than one administration, such as a city or county government,
each of the administrations providing the funding can oversee the
certifying organization's activities, either concurrently or
independently.
[63] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. See
also GAO, Department of Energy: Improved Oversight Could Better Ensure
Opportunities for Small Business Subcontracting, [hyperlink,
http://www.gao.gov/products/GAO-05-459] (Washington, D.C.: May 13,
2005).
[64] Specifically, U.S. DOT's Office of Civil Rights reviews DBE
certification appeals when a firm requests that the office review a
certifying organization's decision to deny or remove the firm from
being certified. See 49 C.F.R. § 26.89.
[65] 76 Fed. Reg. 5083 (Jan. 2011).
[66] In this example, the state DOT has entered into an interagency
agreement with another agency in the state to perform DBE
certifications.
[67] In the fourth state with multiple certifying organizations, an
FHWA division official said that his office shares its responsibility
for overseeing the certification activities of state and local airport
and transit organizations with FAA and FTA.
[68] This report focuses on FHWA's oversight of projects receiving
federal-aid highway funds, including American Recovery and
Reinvestment Act of 2009 (Recovery Act) funds.
[69] Pub. L. No. 109-59, 119 Stat. 1144 (2005).
[70] Pub. L. No. 97-424, § 105(f), 96 Stat. 2097, 2100 (1983), as
amended at 23 U.S.C. § 101 note.
[71] Pub. L. No. 111-352, 124 Stat. 3866 (2011). GPRAMA amends the
Government Performance and Results Act of 1993, Pub. L. No. 103-62,
107 Stat. 285 (1993).
[72] Exec. Order No. 13576, 76 Fed. Reg. 35297 (June 16, 2011).
[73] 75 Fed. Reg. 25815 (May 2010), 76 Fed. Reg. 5083 (Jan. 2011).
[74] Since these states were selected as a nonprobability sample, the
information we gathered from officials in these states cannot be
generalized to all states.
[75] State DOTs must set DBE goals based on, in part, the availability
of DBEs in the relevant market area. Although not required by U.S.
DOT's DBE regulations, some states conduct a study--called a disparity
study--to demonstrate the availability of DBEs.
[76] We considered state DOTs located within the jurisdiction of the
U.S. Court of Appeals for the Ninth Circuit as part of our state
selection criteria because stakeholders we interviewed said that the
court's decision--in Western States Paving Co. v. Washington State
Department of Transportation, 407 F.3d 983 (9th Cir. 2005)--had a
significant impact on how state DOTs located in the Ninth Circuit
implemented U.S. DOT's DBE program. The court held that Washington's
DBE program was not narrowly tailored because the evidence supporting
past discrimination was inadequate.
[77] We did not assess the effectiveness of FHWA's oversight efforts
since some of FHWA's oversight efforts were recently initiated and it
would be too soon to determine the effectiveness of such efforts.
[78] Although the NRT's review focused on Recovery Act projects, the
data and analyses gathered by the team were useful for our review
because DBE requirements are the same for Recovery and non-Recovery
Act projects.
[79] For this report, we use the term "state DOTs" to refer to state
DOTs in all 50 states, the District of Columbia, and Puerto Rico.
[80] According to this FTA official, U.S. DOT's Office of Civil Rights
and Office of General Counsel are responsible for overseeing the
certification activities of all certifying agencies, including those
that receive transit funds, because DBE certifications have an
agencywide impact.
[81] FTA's triennial reviews evaluate the extent to which recipients
of federal transit funds are meeting federal requirements. The
triennial review covers 23 areas, including procurement, financial
management, drug and alcohol programs, and the DBE program. In 2009,
we evaluated FTA's triennial review program. See GAO, Public
Transportation: FTA's Triennial Review Program Has Improved, but
Assessments of Grantees' Performance Could Be Enhanced, [hyperlink,
http://www.gao.gov/products/GAO-09-603] (Washington, D.C.: June 30,
2009).
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO‘s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO‘s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
