Disadvantaged Business Enterprises, Historically Underutilized Businesses and Small Business Enterprises

General
The federal and state programs for disadvantaged business enterprises (DBE), historically underutilized businesses (HUB) and small business enterprises (SBE) have been developed to encourage participation in the construction industry by a wide variety of contractors and therefore expand diversity in the industry.
All federal-aid projects are subject to the DBE requirements. The U.S. Department of Transportation (USDOT) must approve each state’s DBE program and its annual goals to ensure compliance with all DBE program requirements. FHWA has determined a LG must operate under TxDOT's DBE program even if its own program is already approved by USDOT. The AFA includes language that requires the LG to adopt and comply with TxDOT's DBE Program. By signing the AFA the LG is agreeing to operate under TxDOT's DBE Program. LGs are encouraged to contact TxDOT's Civil Rights Division for assistance, as well as review the Local Government DBE Compliance and Monitoring Guide manual. Guidance may also be found at the USDOT’s
Office of Small and Disadvantaged Business Utilization Office
website. FHWA’s
Federal Aid Essentials
website is an additional source for general information regarding DBE requirements.
By regulatory definition, a DBE is:
“… a for-profit small business concern – (1) that is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged or, in the case of a corporation, in which 51 percent of the stock is owned by one or more such individuals; and (2) whose management and daily business operations are controlled by one or more of the socially and economically disadvantaged individuals who own it.”
The DBE participation requirements in federal-aid highway contracts are contract provisions like any other contract provisions and should be administered as such. DBE administrative issues that will require review and attention may arise during a project. These issues will require the LG to have an adequate background of the DBE program. The LG should solicit the advice of TxDOT in resolving these issues as needed.
TxDOT’s DBE specifications and contract provisions include the following:
  • DBE program policy;
  • definitions;
  • DBE contract goal;
  • eligibility criteria;
  • good faith effort provisions;
  • DBE obligations;
  • commercially useful function (CUF) evaluations;
  • sanctions on failure to comply with DBE requirements;
  • determination procedures on counting DBE participation toward the DBE goal;
  • award documentation and procedures;
  • post-award compliance provisions; and
  • records and reporting requirements.
49 CFR Part 26
, titled “Participation by Disadvantaged Business Enterprises in Department of Transportation Programs,” implements a requirement that all federal agencies “narrowly tailor” their affirmative action programs to “meet a compelling government interest.” Transportation agencies (including LGs) must set their goals based on local evidence of the actual availability of qualified DBEs.
  1. State transportation departments must provide for a public participation process in establishing their overall goals. Once goals are established, LGs must maximize race-neutral methods, such as technical assistance and outreach, to meet as much of their overall goals as possible. The remainder of the overall goal will be met through race-conscious measures such as contract goals. All contracts should be individually reviewed and evaluated for the DBE goal standards and applicability. In some instances a project may justify a zero goal given the external or contributing factors.
  2. To participate in the DBE program a business must not exceed small business size standards or individuals must not exceed $750,000 personal net worth cap. To be seen as a small business, a firm must meet Small Business Administration (SBA) size criteria as defined by current size standard(s) found in
    13 CFR Part 121
    and average annual gross receipts as defined by SBA regulations (
    13 CFR §121.104
    ).
  3. One-stop shopping certification programs have been established in Texas so businesses may obtain certification as a DBE to apply for contracts in highway, transit and airport agencies. The
    Texas Unified Certification Program
    is a certification process for the federal DBE programs in Texas. A business’ DBE certification is valid at any Texas entity receiving USDOT funds and has a DBE program.
  4. Contractors will not be penalized if they fail to meet contract DBE goals as long as they follow the good faith effort guidelines in
    49 CFR Part 26, Appendix A
    and submit their good faith effort to their appropriate district DBE coordinator for review, guidance and approval.
  5. Contractors who fail to meet DBE goals and fail to make a good faith effort may be found to be in violation of the contract. The violation may result in:
    1. the termination of the contract;
    2. the deduction of the dollar amount of DBE goal not accomplished; or
    3. such other remedy or remedies as deemed appropriate.
Federal Requirements
  1. 49 CFR Part 26
    design-bid-build – Requires the DBE program to not restrict competition or provide in-state or other local preference.
  2. 23 CFR §635.107(b)
    design-build – Applies the provisions of
    49 CFR Part 26
    and the receiving agency’s approved DBE plan. If DBE goals are set, DBE commitments above the goal must not be used as a proposal evaluation factor in determining the successful proposer.
State Requirements
  1. Texas Transportation Code §201.702
    - Requires TxDOT to set goals for awarding state or federally funded contracts to disadvantaged businesses. The goals must approximate the federal requirement for federal funds.
  2. 43 TAC §§9.354-9.355
    – Requires TxDOT to establish overall HUB participation goals and assign individual project goals to achieve the overall goal. Note that the Comptroller of Public Accounts (CPA) certifies HUBs and provides that the CPA recognize some TxDOT-certified DBEs as HUBs. Requires provisions addressing HUBs to be included in TxDOT contracts funded entirely with state and local funds. The HUB requirements do not apply to contracts with federal funds.
  3. 43 TAC §§9.314-9.315
    – Requires TxDOT to establish annual SBE contracting goals. Notes that TxDOT maintains a SBE directory and provides that TxDOT-certified DBEs and HUBs also meet SBE requirements without having to apply for SBE eligibility. Allows provisions addressing SBEs be included in TxDOT contracts funded entirely with state and local funds. The SBE requirements do not apply to contracts with federal funds.
  4. Texas Government Code Chapter 2161
    (see also
    43 TAC §§9.350-9.367
    ) – Provides that the HUB program is applicable to state agencies and institutions of higher learning. Includes certification of HUBs and maintenance of a directory of certified HUBs. This requirement does not apply to local or other entities.
  5. Texas Government Code Chapter 2252 Subchapter E
    – Defines the general requirements for a contractor (including a subcontractor) claiming status as a DBE or HUB. Applies to all agencies and entities. It does not include language concerning requirements for agencies to consider DBEs or HUBs in contract administration.
  6. Texas Transportation Code §366.184
    – Requires regional tollway authorities (RTAs) to set goals for disadvantaged businesses consistent with general law.
  7. Texas Transportation Code §370.183
    – Requires RMAs to set goals for disadvantaged businesses consistent with general law.
Required Practices
In general, the LG must follow state and federal guidelines in adopting TxDOT’s DBE program and developing local DBE goals as described in the
LGPM Guide
.