(This post is a guest blog post from John Sullivan, Esquire. John specializes in DBE issues and disparity studies. His website is www.crosonlegalservices.com and his he can be reached via email at firstname.lastname@example.org)
The title of the recent USDOT Inspector General’s audit is blandly bureaucratic – “Weaknesses in the Department’s Disadvantaged Business Enterprise Program Limit Achievement of its Objectives” — but the report’s message is scathing: the DBE program is failing.
The United States Department of Transportation Disadvantaged Business Enterprise (DBE) program was created in 1982. The program is designed to help socially and economically disadvantaged small business owners contract with the Department of Transportation. The program is huge, awarding around $4 billion in federal transportation contracts to DBEs each year. Most of this work is construction. Virtually all the DBEs are owned by minorities and women.
One of the fundamental goals of the program is to assist “in the development of DBE firms so that they can compete outside the DBE program.” The program is supposed to bootstrap small firms from the DBE program into the economic mainstream. Then, the theory goes, these firms can compete in the marketplace on their own merits, without the need for a contracting preference based on race, ethnicity, or gender.
Exactly the opposite is happening. The Inspector General’s report concludes that the DBE program does not encourage DBEs to enter the marketplace. In fact, the program is so enticing that business owners will actually turn down work if necessary, so their business stays small enough to qualify as a DBE.
What has gone wrong?
The USDOT DBE program has no term limit on participation, leaving little incentive to exit the program. The biggest federal preference program, the Small Business Administration 8(a) program, limits businesses to a nine year term. The USDOT has no such limit. The Inspector General’s audit randomly studied 121 DBEs. Of these, nearly half had been in the program more than a decade.
None of this is new. As far back as 1994 the Government Accountability Office recommended to the Secretary of Transportation that the DOT develop performance measures to evaluate whether the DBE program was actually helping to develop firms to compete outside the program. Clearly, it isn’t.
Not only are businesses staying indefinitely in the program, few are getting work while in the program. In Maryland , for example, there are almost 5000 DBEs but only 12% have ever received federally funded work as a prime or subcontractor. The USDOT does not even require state DOTs to track how many DBEs are getting work.
Nor is the problem surprising. The Inspector General’s report slammed USDOT for failing to establish “a single line of accountability.” The report characterized this management style as a “fragmented approach,” one which yields the unfortunate result that, “officials for all 15 states we spoke to say that they have limited or no communication with DOT Headquarters about the DBE program.”
Currently there are court challenges, filed by construction firms, to the constitutionality of the DBE programs in Montana and Illinois. The Inspector General’s audit makes these challenges more likely to succeed and may inspire challenges elsewhere.