American DBE Magazine Business Development: Best Practices for Facilitating the DBE Program in the Public-Private Partnership Environment

Best Practices for Facilitating the DBE Program in the Public-Private Partnership Environment

By Rita Ohaya and Kunqi Zhang

Public-private partnerships (P3s) are ongoing agreements between government and private sector organizations in which the private organization participates in the decision-making and production of a public good or service that the public sector has traditionally provided and in which the private sector shares the risk of that production. P3s motivate the private sector’s ingenuity and efficiency, save lifecycle costs, have better schedule certainty than the traditional procurement model, and lock in long-term funding and commitment for operation and maintenance.

The U.S. Department of Transportation (USDOT) is one of the agencies that has significantly increased its use of P3 and continues to use it as a model to deliver its projects. Policymakers and transportation officials view P3 as an alternative method to supplement traditional funding sources to finance and deliver projects, especially given fiscal constraints on government projects.

The DBE program is a federal program that provides opportunities and development to minority and women-owned businesses working on public projects. All 50 states participate in the program. However, the implementation of the DBE program has been criticized in the past due to its perceived lack of strong language and goals in the contract. This may be especially relevant in P3 projects, given the unspecified nature of P3 contractual terms and the potential loss of accountability.

Notwithstanding, P3s offer an excellent vehicle to dispense transportation monies to small firms and bolster the economy.

Examining 134 transportation contracts in the U.S. revealed that P3 is associated with a higher DBE goal than the traditional procurement model and that the two procurement models are not different in terms of DBE attainment, i.e., the percentage of contract amount spent on DBEs at project completion. These positive findings brought impetus to the study of best practices for encouraging DBE compliance in the P3 environment.

Dr. Ohaya conducted a study that focused on the DBE compliance administrators’ perception of the DBE program’s inclusion into the P3 environment and how that influences DBE compliance, thus, the accountability and increased social equity achieved by the contractors’ P3 projects. By collecting data from the FHWA compliance administrators, the study investigated the effects of the P3 model on DBE goals or good faith efforts, analyzed any strengths and weaknesses that may be made apparent by the P3 environment, and derived strategies to monitor compliance on P3 projects. Dr. Ohaya conducted one-onone in-depth semistructured interviews with 24 participants responsible for monitoring the DBE program compliance on P3 projects. Ultimately, the study found various best practices expounded by the DBE administrators within the P3 sector (below).

Perceived Best Practices for Implementing the DBE Program in the P3 Environment

1. Communication and Collaboration

• Collaboration with private partners

• Monthly meetings

• Communicate DBE requirements early, and often

The participants emphasized collaborating and communicating with the private partners more than expected on other project types. Some participants perceived that in the P3 environment, it is a best practice for the public partner to collaborate with private partners in implementing the DBE program. The participants offered monthly meetings and regular communication with the private partners regarding the DBE requirements.

2. Control and Oversight

• The project owner maintains compliance oversight

• The project owner maintains accountability

Half of the participants perceived the project owner responsible for DBE compliance oversight on P3 projects as a best practice. The participants perceived that the project owner has to be the principal and hold the private and public partners accountable for their DBE program roles and responsibilities on the P3 projects.

3. DBE Goal Setting

• Currently no difference in DBE goal setting

• One DBE goal

• Create separate DBE goals

• Different goal-setting process

• Private partner input

Although the majority of the participants reported using the same DBE goal-setting methodology on P3 projects as they did on other project types and identified only setting one DBE goal on its current DBE projects, half of the participants perceived that a best practice would be to set multiple DBE goals on P3 projects, specifically one for design and another for construction. Some participants also perceived that the DBE goal-setting process on P3 projects should differ from other project types.

4. DBE Application

• DBE department’s early involvement

• Currently no difference in implementation

• DBE program should be applied differently

• Leadership commitment

• FHWA support

• Creative and innovative mechanisms

• Placement of the DBE department

An overwhelming number of participants emphasized that the DBE department must be involved in the planning phase of the P3 projects to set the appropriate precedent. Although the participants shared that there was currently no difference in the agency’s implementation of the DBE program on P3 projects, a significant number of participants perceived that it would be best for the DBE program to be applied differently on P3 projects. Especially with the private partner’s increased input, there should be an effort to create shared objectives. Many participants perceived leadership’s commitment and FHWA guidance or a collaborative revision of the DBE program on P3 projects as a best practice. The participants encouraged the use of creative and innovative mechanisms to encourage DBE compliance and further the objectives of the DBE program on the P3 projects. Many participants communicated that a best practice is to place the DBE department where it has support.

5. Non-Compliance Ramifications

• The contract language contains consequences

• Strong enforcement languages and consequences

• Liquidated damages, financial penalty, or administrative sanction

• DBE contract deliverable

• Debarred from agency

A significant number of participants perceived that it would be a best practice for the DBE contracts to obtain strong DBE enforcement languages and consequences as it is more likely to yield compliance. The participants suggested that the DBE requirements be included in the contract as a deliverable as a best practice, so should there be non-compliance, it would be a violation of the contract. The administrators recommended liquidated damage, financial penalty, and administrative sanction as noncompliance remedies. The participants perceived financial penalty as the most effective mechanism and best practice for enforcing the DBE program in the P3 environment. The participants also suggested the use of debarment to enforce the DBE program.

6. Strategies for ensuring compliance

• Facilitate DBE P3 training

• Ongoing compliance reviews

• DBE plan

• DBE outreach

• DBE reports

• Evaluate historical influence

• Unbundle scope

• Develop solid goals and compliance mechanism

• Support the DBEs by facilitating relationships

The DBE administrators recommended facilitating DBE training and ongoing compliance reviews as a best practice for ensuring compliance in the P3 environment. A significant number of the participants repeatedly recommended requiring the private partner to submit a DBE plan at the beginning of the P3 project, facilitating DBE outreach events, regularly submitting DBE reports, and unbundling the scope as best practices for ensuring compliance. The participants offered that evaluating the historical performance of the primes, then using a reputational influence mechanism is a best practice for encouraging DBE compliance because the primes are likely to be compliant and not jeopardize the future award of contracts. The participants suggested supporting the DBEs by facilitating relationships with the larger organizations or potential primes as a best practice. They also suggested using solid, attainable DBE goals and compliance mechanisms to track the performance of the prime as a best practice on P3 projects.

7. System for monitoring the DBE program

• Designated P3 resources

• Automated compliance system

• Consultant support

• Advocacy organization

The administrators perceived that utilizing designated resources to implement and monitor the DBE program is a best practice. The participants offered automated compliance information systems to measure the primes progress of the DBE program. The participants perceived that a best practice in the P3 environment is soliciting external consultants to support the DBE program implementation and monitoring.

A distinct element of the P3 model is that it allows the public sector to supplement funds from the private partner, allowing for risk sharing between the public and private organizations. Transportation agencies are expected to continue to utilize the P3 model, given its demonstrated advantages. Critics are concerned that the P3 model may influence the public sector’s oversight and ability to maintain or require accountability of private organizations. The best practices provided in the study can guide the formalization of enforcement practices to maintain compliance and ensure that organizations meet their social equity goals.

Rita Ohaya, Ph.D.

Kunqi Zhang