May 16, 2006
SUBJECT: Change in the Disadvantage Business Enterprise Program
REPORT IN BRIEF
On May 1, 2006, the California Department of Transportation (Caltrans) issued new guidelines for administering the Disadvantaged Business Enterprise (DBE) Program. A DBE Program is intended to provide opportunities for women and minority owned transportation businesses to participate in federally funded transportation projects. Under these new guidelines, the City’s existing DBE Program will be superseded by a new statewide DBE program that does not consider race. Caltrans has revised its DBE program in response to a successful lawsuit in Washington State that determined that if a state is unable to prove that an environment of discrimination exists, then it must abandon programs that are considered race conscious. Caltrans is in the process of conducting a statewide study to determine if discrimination exists in the field of transportation contracts within California, however the study is not expected to be completed until May 2007. In the meantime, cities are required to adopt an interim program that is race neutral for all federally funded transportation projects, or face the prospect of having project cost reimbursements rejected. Current federally funded transportation projects in the City amount to over $18.9 million. It is possible that once Caltrans has completed its one year study that cities will then be required to return to their previous DBE program.
City Council is being asked to authorize the City Manager to execute all documents required to implement the new Caltrans DBE Program in order to ensure continued funding and reimbursement on federal transportation projects.
BACKGROUND
The Code of Federal Regulations (CFR), Title 49, Sections 23 and 26, requires local agencies administering federal aid projects to establish and maintain a Disadvantaged Business Enterprise (DBE) Program. A DBE Program is intended to provide opportunities for women and minority owned transportation businesses to participate in federally funded transportation projects. The City Council first adopted a DBE program in Fiscal Year 1992-93 and has maintained a DBE program in each subsequent year. The City currently is involved in five federally funded projects involving the Mathilda Overpass, Borregas Bicycle Corridor, Evelyn Bike Lane, Calabazas Creek Trail and the North-South Bike Route. Federal grants committed to these projects amount to $18.9 million. Establishing a DBE program is a requirement for federal reimbursement.
Caltrans is responsible for ensuring compliance with requirements for participation by disadvantaged business enterprises when local agencies develop streets and roadways using federal funds. The City is required to implement a DBE program and establish goals for participation by disadvantaged business enterprises before a request for reimbursement is approved by Caltrans, the state oversight agency. City goals are established based on the number of available DBE contractors for City projects and historical data.
A recent Ninth Circuit Court of Appeals decision involving the Washington State Department of Transportation (WSHDOT) held that WSHDOT lacked sufficient evidence to support the use of race conscious measures on federal-aid contracts. The federally mandated DBE Program itself was not declared unconstitutional. The Ninth Circuit Court is the controlling authority for California and other Western States within its jurisdiction. After an assessment by Caltrans of its DBE program and the use of race conscious goals on individual contracts, Caltrans determined that its program may not meet the new evidentiary standards established by the Ninth Circuit.
On May 1, 2006, Caltrans implemented a race-neutral DBE program for federally funded projects. Effective immediately:
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Local agencies will no longer have their own separate DBE programs for projects with federal funding and must complete a Disadvantaged Business Enterprise Race-Neutral Implementation Agreement.
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Local agencies may no longer advertise and award contracts with federal-aid funds containing race-conscious DBE goals.
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All federal-aid procurements shall contain race-neutral DBE contract language.
Funding will be suspended for cities not meeting all of the above requirements by June 1, 2006.
EXISTING POLICY
Land Use and Transportation Sub-Element, Goal C4, Policy C4.1.2
“Encourage businesses that provide a range of job opportunities.”
DISCUSSION
This change in the DBE Program does not affect funding for all City capital projects, only those receiving federal funds for transportation related improvements. In order to receive reimbursement on current and future transportation related projects, the City of Sunnyvale must enter into a Disadvantaged Business Enterprise Race-neutral Implementation Agreement for Local Agencies (Attachment A).
The Implementation Agreement contains many of the same elements that were previously included in the Sunnyvale DBE Program, among these goals:
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To ensure nondiscrimination in the award and administration of State Department of Transportation (DOT)-assisted contracts.
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To create a level playing field on which DBE’s can compete fairly for DOT-assisted contracts.
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To ensure that their annual overall DBE participation percentage is narrowly tailored, in accordance with applicable law.
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To ensure that only firms that fully meet 49 CFR, Part 26 eligibility standards are permitted to participate as DBE’s.
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To help remove barriers to the participation of DBE’s in DOT-assisted contracts.
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To assist the development of firms that can compete successfully in the market place outside the DBE Program.
However, other parts of the DBE program will change significantly. For example, the City is no longer allowed to establish contract goals to meet any portion of their overall goal, and a contractor is no longer required to document their good faith efforts when they cannot meet the DBE goal. Contract and bid package documents must also be changed to reflect the race neutral program.
The new statewide DBE participation goal is 10.5% which is to be attained using race neutral means such as:
1. Advertising solicitations, scheduling bidding periods and opening times, and packaging quantities, specifications, and delivery schedules in ways that facilitate DBE and other small business participation.
2. Providing technical assistance and other services to DBE and small businesses.
3. Ensuring the dissemination to bidders on prime contracts of lists of potential subcontractors including DBE’s and small businesses; providing the information in languages other than English, where appropriate.
The City’s current DBE goal for FY 05-06 is 9.2%, which is based on actual attainments.
FISCAL IMPACT
Annual adoption of a Disadvantaged Business Enterprise Program for federally funded projects allows the City to receive reimbursement on approximately $18.9 million in federally funded transportation grants for the following capital projects. The funds shown below are for the duration of each project:
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Mathilda Avenue Railroad Overpass Improvements: |
$10M |
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Borregas Avenue Bicycle Corridor: |
$6.5M |
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Francis Street Transit Corridor: |
$1.3M |
|
Mary Avenue Reconstruction: |
$490,000 |
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Roadway Rehabilitation on Various Streets: |
$1.1M |
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Total Transportation Funding- |
$18.9M |