Instructor: Welcome to the third video about the Federal Transit Administration’s Disadvantaged Business Enterprise Program.

You have already learned why grantees need a DBE program.

You also learned there are four key elements to the DBE Program.

Today we will look at establishing your goals.

Your DBE goal is the percentage of federal funds you believe you can spend on contracting with disadvantaged business enterprises.

The DBE Goal Setting process involves collecting and analyzing data, reviewing external evidence, consulting with outside stakeholders, assembling a goal document, notifying the public and last, seeking FTA approval.

It takes months to gather the necessary information, so please allow yourself enough time to prepare your goal setting methodology.

Grantees normally develop what is known as a program of projects that they plan to implement over a given time period. This program of projects also represents the potential contracting opportunities, like this small example shows.

Please note that for DBE goal setting purposes, transit vehicle purchases should not be included.

You must submit an overall DBE goal to FTA. The overall DBE goal is derived from the anticipated DBE goals of each individual project.

Your overarching DBE goal is due to FTA August 1st every three years and you can see the submission schedule on the FTA's Civil Rights web page.

Let’s take a closer look at one of the projects in your program - building a new maintenance facility. Previously, if you were thinking about this major project on its own, absent the DBE Program, you might have solicited bids from three large contractors and chosen the one with the lowest bid.

But since you're now participating in the DBE program, you'll need to reexamine the project, because you must consider how to include small and disadvantaged businesses when you build the new maintenance facility.

Often, a large turnkey contract may be composed of multiple smaller products or services. So what if you took the overall work of the maintenance facility and broke it down into pieces? Unbundling, or separating the work into smaller components, opens the door for DBEs and other small businesses to compete for pieces of the project.

But how do you actually determine your DBE goal?

Step One in setting your goal is to research the market in your geographic area to determine a base figure for the relative availability of DBEs.

To do this, you'll need to find information on all firms, including DBEs, within your geographic area that can fulfill the products and services you need. In this simple example we identified 40 total firms, eight of which are DBEs.

We can identify the type of work these firms can perform by using the national NAICS codes.

NAICS codes are the standards used to classify businesses for federal agencies and will help you clearly distinguish the goods and services these businesses provide.

So how do you find the DBEs in your area? There are a number of resources you can use. Remember your methodology must document which resources you have selected.

One resource is your state's Unified Certification Program, also known as UCP. Every state offers this program, which provides resources for recipients, prime contractors, DBEs and the general public. The UCP maintains a directory of certified DBEs that perform work in various fields in the areas where your project is located.

A resource for identifying all firms is the U.S. Census Bureau. Using the Census Bureau's County Business Pattern database, you can determine the number of businesses available in your area to perform the work you need. You can also use the Bureau’s Quick Facts pages to learn about potential DBEs within your market.

A third resource is your own bidders list from previous projects. Your bidders list should contain all firms that bid on your projects and whether or not they are DBEs. You can determine availability by examining how many DBEs have bid or quoted on your projects in the past, either as prime or subcontractors, compared to all other firms.

Sometimes, you'll need to expand your geographic area, particularly if you need a specialized service or product. For example, solar panels to power your building. But when looking for specialized firms, be sure to look at both DBE and non-DBE firms with that specialty.

Now that you have done your research for all your projects, you can create your base figure expressed as a percentage.

The base figure for the overall goal is calculated by taking the total number of DBEs divided by the total number of firms across all work categories. For example, 120 DBE firms divided by 600 total firms is 20%.

After this, it is recommended that you refine that base figure by using a statistical technique called weighting.

Weighting is the process by which you compare the DBE firms for each category of work with the proportion of funds you expect to spend in that category.

So now we have our base figure and we've adjusted it using weighting. But we still need to look at external evidence in case we need to further refine it. We’ll do this in Step 2.

There are certain types of external evidence that you must consider to determine if your figure needs additional adjusting.

First you need to look at the current capacity of DBEs that can perform the work you need, as measured by the volume of work DBEs have performed in recent years.

You need to review data from disparity studies in your area, if they are available. Often they can tell you what businesses in your area applied for work and why they did not get it, either for socio-economic or other reasons.

Public agencies, consulting groups, think tanks, universities, and private interest groups are just some examples of organizations that conduct disparity studies.

If available, you must consider evidence from related fields that affect the opportunities for DBEs to form, grow and compete in your region.

These include such fields as the financing, bonding and insurance required to compete for your projects.

Information from these areas may help you develop different strategies such as reduced bonding requirements for small and disadvantaged businesses.

Thoughtful examination of all of the evidence should result in a more refined product.

However, while you must consider the evidence found in these additional resources, you are not required to adjust your goal value if you do not deem that it is necessary, but you must describe the resources you considered and explain your decision.

For our example, after an examination of all of the external evidence, we decided not to adjust our overall goal value.

As a recipient of federal funds, you have an obligation to make your goals known not only to the FTA, but also to the public, especially those organizations and firms that are affected by your DBE program.

The first part of this public participation process is consultation. You will need to consult with community organizations, small businesses and minority groups to get their input on your DBE goal.

You can hold outreach sessions inviting DBEs, prime contractors and small businesses to discuss your upcoming contracting opportunities.

When consulting with advocacy groups consider representatives from a variety of interests: minority, women and small businesses at the regional, state, and national levels.

These groups can act as a resource to help you determine the availability of DBEs that meet your service needs. It’s also an opportunity for them to understand your goal methodology process, provide feedback and strategize ways to attract DBEs.

In a perfect world, there would be no socially disadvantaged small businesses. Until then, Congress has determined that there is still a continuing and compelling need to assist DBEs. And the step you take to contract with a DBE firm falls under one of two categories: either race conscious or race neutral means.

A considerable part of the DBE goal submission is to include what percentage of your work you plan to award using race neutral means and how you arrived at this figure.

If you remember from our previous videos, race conscious is a measure or program that is focused specifically on assisting only DBEs. The establishment of contract goals for DBE participation is a race conscious measure.

Race neutral, on the other hand, is a measure or program that is used to assist all small businesses. A race neutral approach, which allows all small business to compete with each other, including DBEs, is one way to meet your goal.

The DBE regulation encourages you to use race neutral means whenever you can. One way to facilitate race neutral participation is to ensure that some contracts are only available to small businesses.

If you cannot meet your overall goal using race neutral measures alone, you must use race conscious measures to make up the difference.

You must project how much of DBE participation you will be able to achieve using the two interrelated means. This is referred to as the race conscious and race neutral split.

Let's briefly look at how to determine this split, using the overall DBE goal that we have established so far.

Remember, we started by determining our base figure was 20%. Then we adjusted that figure by weighting it and by examining other evidence. As a result, our adjusted base figure is now 25%.

Now let's see how we'll split that 25% using race conscious versus race neutral means.

First, let's look at how our projects break out. Our spreadsheet shows what services we are planning to undertake in our program of projects and what we believe each service will cost.

Next, we determined that the first three services can be granted as stand-alone contracts and can be bid only to small businesses. Added together, they yield a subtotal of $400,000.

Given the availability of DBE firms for these opportunities, we project that 25% of these small contracting opportunities can be won by DBE firms.

Next, we see the balance of the services needed to complete the program of projects that will go to mid-sized and large contractors. They in turn, will hire specialized subcontractors. This presents a lot of different opportunities for DBE participation.

Looking at past experience, you may discover it is sometimes more effective to award a very large contract and search for DBE firms as subcontractors.

Consider questions like: are prime bidders likely to bring DBE subcontractors to the table with them to bid on this project without you requiring a DBE contract goal? Are there ways prime bidders can be encouraged to include small businesses without explicitly asking for DBEs to participate?

If the answer to those questions is 'yes, you may predict that DBE participation is possible on this project using race neutral means.

Now back to our example. Based on past experience, let’s assume that the midsize and large contracts will provide $7 million in DBE participation.

We then add the previous sum of $100,000 to the $7,000,000 to get the amount that we believe will be awarded to DBEs using race neutral means.

Expressed as a percentage, that's 7.1% of the overall funds available.

Last, we can now calculate our race conscious projection by simply subtracting our race neutral projection: 7.1% from our overall goal amount of 25%.

The remainder, 17.9%, indicates how much of our goal will use race conscious means.

For more information on establishing your race conscious and race neutral split and other goal setting considerations, please visit the website for the Office of Small and Disadvantaged Business Utilization.

Once your overall goal is established, but prior to seeking concurrence from FTA you must advertise the opportunity for public comment within your community.

This is to inform prime contractors, DBEs and other small businesses that you’re seeking DBE participation. You’re also seeking comments from the general public and interested parties.

The requirement states that you must publish a notice announcing your overall goal, that it be made available for inspection for 30 days, and that the public may provide comments for 45 days after you’ve published the notice.

Grantees are encouraged to post their goal in multiple ways. Examples include showcasing your goal prominently on your website, posting it on the website of other transit industry organizations and publishing print ads in minority and construction industry trade papers or magazines.

You must document the public notification, include any comments that you may have received and document whether or not these comments caused you to amend your goal.

These actions make your goals transparent to all, so DBEs, the contracting community and the public know you're seeking to do business with DBEs.

While it may take some time to gather all the information, set the goals, and advertise them, you, as a grantee, only have to set the goal once every three years. You do however have to submit a status report once every six months about the progress you’ve made in achieving your goals.

The end result of the goal setting process is to show the reasoning and method you used for including DBEs in your contracting plans.

Essentially, you are creating a business case on how you plan to contract with disadvantaged businesses and how you will achieve your overall DBE goal.

Think of it as a white paper that includes such information as how much money you received from the FTA and what sources you plan to use to achieve your DBE goals.

You also need to report how you consulted with the public and interested organizations and then how you notified the public of your goal.

Your goal ultimately needs to be submitted to the FTA for concurrence. As noted earlier, you can visit our website to see what year you need to submit your goal.

Let's review the required DBE Goal Setting steps. As part of your overall goal submission, you must describe the methodology you used to establish your goal including the sources used to develop your base figure, and any external evidence used to adjust it. Document your consultative process. You must also include your projected goals to be achieved through race neutral and race conscious measures. Lastly provide documentation of your public notice.

We hope we've given you a better understanding of the goal setting process you must follow to comply with engaging disadvantaged businesses. It may seem complicated at first, but it will get easier with practice.

And at any time, the FTA is here to answer any questions you may have about the process. You can find information on our website of contact us via email and we'll help you find the answers you're seeking.