Explanation for Approval of Washington State's FY 2017-2019 DBE Goal Setting Methodology

This document sets forth FHWA's reasons for approving the Washington State Department of Transportation's (WSDOT or State) Disadvantaged Business Enterprise (DBE) goal methodology, and requiring changes to the portions of the goal to be attained by race/gender-neutral and race/gender­conscious means for FY 2017-2019. WSDOT is expected to make a good faith effort to meet its overall goal each year during the three-year period. Any mid-cycle adjustments needed to reflect a significant change in circumstances require prior FHW A approval.

Goal Setting Methodology - 49 CFR Part 26.45

The regulations at 49 CFR § 26.45(b) require recipients to set overall goals based on demonstrative evidence of the availability of ready, willing and able DBEs relative to all businesses ready, willing and able to participate on DOT-assisted contracts. Determining the relative availability of DBEs in the State's contracting market is a starting point. Various examples of approaches recipients may use to determine relative availability are set out in the regulations at 49 CFR § 26.45(c). The examples are not intended to be exclusive. Other methods or combination of methods may be used, subject to FHWA approval.

WSDOT utilized the results of its September 2017 Disparity Study (the Study), conducted by Colette Holt & Associates (CHA), to determine its overall goal.

The State believes that the Study provides a narrowly tailored, statistically sound, and detailed basis to meet the requirements of 49 CFR Part 26.

Step One Base Figure - 26.45(c)

CHA reviewed WSDOT's contracting data (from Fiscal Years 2012 through 2015). Due to the large volume of contracts, CHA created a sample file for its analysis (Final Contract Data File). The Final Contract Data File was used to determine the geographic market for the analysis, estimate the utilization of DBEs on those contracts, and calculate their availability in WSDOT's marketplace.

In determining the relevant geographic market area, the Study used firms' locations (that account for at least 75 percent of contract/subcontract payments in the sample file - location was determined by ZIP codes). The table below shows the distribution ofWSDOT (and Local Agency) Federal-aid contracts by State. As reflected in the table, 91.8 percent of WSDOT's total Federal-aid funds went to firms located in Washington State; therefore, Washington State was determined to be the relevant geographic market area.

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State Percent Total Contract Dollars Cumulative Percent Total Contract Dollars WA 91.8% 91.8% OR 2.5% 94.4% ID 1.3% 95.7% OH 1.2% 96.9% PA 1.2% 98.1% Total 100.0%

Source; WSDOT 2017 Disparity Study, Executive Summaiy, Pg. 7, TahleC

CHA used a "custom census" approach to determine the aggregated availability of DB Es. This alternate approach focused on specific areas of work (using NAICS) related to the types of transportation construction and engineering contracts that WSDOT awarded during the study period (FY 2012-2015). CHA further refined the list to include the assignment of race and gender. The following databases were utilized to form the custom census:

• The WSDOT Final Contract Data File (417 prime contracts totaling $2,328,344,423.60; with 5,475 associated subcontracts totaling $963,172,968.90);

• A Master D/M/WBE Directory compiled by CHA (based on lists from government agencies and private organizations);

• Dun and Bradstreet/Hoovers Database (obtained from the companies' website);

CHA determined, using the custom census approach, that the aggregated availability of DB Es, weighted by WSDOT's spending (on Federal-aid contracts), is 19 percent for FHWA-funded contracts.

NAICS Black Hispanic Asian Native White DBE Non- Total American Women DBE

Total 1.0% 2.6% 2.1 % 3.0% 10.3% 19.0% 81.1% 100.00% Source: CHA Analysis orWSDOT data; Hoov=; CHA Master Din:ctoiy, Pg. 9, Table G

Step Two Adjustments - 26.45(d)

As required by the regulations at 49 CFR § 26.45(d), WSDOT examined a broad range of evidence when considering a Step Two adjustment to the base figure. For example:

• WSDOT considered five years of past DBE participation - FY 2012 through FY 2016. As shown in the table below, the median DBE participation on FHWA-assisted contracts during this five-year period was 15.1 percent.

FFY DBE Particioation 2012 15.2% 2013 16.4% 2014 14.1% 2015 11.7% 2016 15.1%

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• WSDOT considered the quantitative data identified in Chapter 5 of the Disparity Study ( e.g., data from the Census Bureau's Survey of Business Owners, and the Census Bureau's American Community Survey (ACS), which evidence disparities in wages, business earnings, and business formation rates of Minority/Women's Business Enterprises (M/WBEs) - as compared to similar non-M/WBEs).

• WSDOT also considered the anecdotal evidence, obtained by CHA through interviews with business owners and stakeholders, and an electronic survey. The results strongly suggest that minorities and women {within WSDOT's geographic marketplace) continue to face discriminatory barriers in accessing prime contract and subcontract opportunities.

While WSDOT believes the above to be relevant, it has concluded that some of the results are too difficult to quantify within the strict scrutiny standards.

Step 2 Adiustment Evaluation

As described above, WSDOT has considered all available information relevant to a Step 2 adjustment and proposes to not make an adjustment to the base figure.

Public Participation -49 CFR Part 26.45{g)

The regulations require recipients to provide for public participation when establishing its overall goal. The following summarizes WSDOT's public participation, which meets the requirements of the regulations.

• WSDOT consulted with several contracting groups, such as the AGC of Washington; National Association of Minority Contractors-Washington; Women in Highway Construction; Tabor 100; Washington Asphalt Pavement Association; Latino Civil Alliance; et al (all members of WSDOT's DBE Advisory Group).

• Five public meetings were held around the State (Seattle, North Seattle, Vancouver, Spokane, Pasco) from the period November 28 through December 13. WSDOT also conducted a webinar for anyone unable to attend the public meetings (see Appendix A for testimony and written comments received by WSDOT).

WSDOT carefully evaluated and considered all comments received and concluded that they did not produce the type of quantitative information nor substantive evidence relevant to the determination of availability or utilization that would result in WSDOT revising its proposed overall DBE goal.

Projection of Race/Gender-Neutral (RN) v. Race/Gender-Conscious (RC) Goal Attainment-49 CFR Part 26.51

In determining the percentage of the overall goal that WSDOT could expect to achieve using race­neutral means, the Study team examined past race-neutral DBE participation. As shown in the following table, the median race-neutral percentage on Federal-aid contracts for FY 2012-2016 was 2.2 percent.

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FY Total DBE Participation Race-Neutral Particination ; Race-Conscious Participation 2012 15.2% 2.1% 13.1% 2013 16.4% 2.3% 14.1% 2014 14.1% 1.8% 12.3% 2015 11.7% 2.2% 9.6% 2016 15.1% 2.7% 12.5%

Based on this data, WSDOT projects that it will meet 2.2 percent of its overall DBE goal through race­neutral means. WSDOT proposes that the remainder, 16.8 percent, would be obtained using race/gender­conscious measures (i.e., DBE contract goals).

Race-Neutral Initiatives Implemented by the State

WSDOT will meet the maximum feasible portion of its overall goal through the race/gender-neutral initiatives/measures listed below:

• Supportive Services - WSDOT currently provides supportive services to DBEs and other small businesses either directly or through contracts with various community-based organizations (using FHWA's DBE Supportive Services Program funding). Services provided include assistance in estimating and bidding, obtaining bonding or financing, immediate and long-term business management, recordkeeping, financial and accounting capabilities, enrollment in business related courses, free access to WSDOT plans and specifications, et al.

• Outreach and Networking - WSDOT participates in numerous outreach activities aimed at minority and women-owned businesses. These include, but are not limited to: sponsoring an annual Regional Contracting Forum in partnership with state, local and federal agencies; working with organizations such as the Association of General Contractors (AGC), American Council of Engineering Companies (ACEC), NW Minority Supplier Diversity Council, Women in Construction, USDOT's Small Business Transportation Resource Center, Tabor 100, National Association of Minority Contractors (Seattle Chapter), the Office of Minority & Women's Business Enterprises, and other groups to promote the DBE program.

• Emerging Contractor Support Initiatives - WSDOT continues to examine and identify potential innovative race-neutral support services programs and resources. The process includes soliciting input from other State DOTs, local agencies, various construction groups and DBE organizations.

• Prompt Payment - As of June 2017, WSDOT began using a new electronic monitoring system (B2Gnow) to assist in tracking payments to all subcontractors (associated with Federal-aid contracts). The system is monitored by WSDOT project staff, as well as Office of Equal Opportunity Staff.

• WSDOT Waiver (based on 2012 Disparity Study) - Under this waiver, work performed by Caucasian female-owned DBEs (on Federal-aid contracts) can only be counted as race-neutral participation. WSDOT routinely encourages the prime contracting community to voluntarily employ Caucasian female-owned DBEs, as race-neutral participation.

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Conclusion

Our review ofWSDOT's goal setting methodology (and supporting documentation) concludes that WSDOT's FY 2017-FY 2019 methodology complies with the requirements of 49 CFR 49 CFR §§ 26.45 and 26.51 and is therefore approved.

As noted in WSDOT's January 11, 2018 transmittal letter, WSDOT is continuing to operate under a USDOT-approved waiver, which excludes non-Hispanic white women-owned DBEs from race­conscious participation. In consideration of the impacts posed by the waiver, WSDOT established "interim" projections of I 0.3 percent race-neutral and 8. 7 percent race-conscious (pending rescission of the waiver).

WSDOT has operated under these projections since January 2018. As of July 31, 2018, WSDOT reported 7.92 percent in race-conscious participation and 3.50 in race-neutral participation for a total of I 1.42 percent. Considering the level of DBE participation in FY 2017 and FY 2018, and the challenges that WSDOT continues to face in obtaining sufficient RN participation to help meet its overall goal, we understand that WSDOT is looking to enhance its Small Business Element (SBE) portion of its DBE Program by adopting additional RN measures in hopes of increasing race-neutral participation. We anticipate receiving a revised SBE plan from WSDOT in the near future, for FHW A review and approval.

WSDOT is scheduled to submit its triennial DBE Overall Goal methodology to FHWA in August 2019 (for the FY 2020-2022 timeframe). Our review of the FY 2020-2022 DBE Overall Goal Methodology will consider, among other things, WSDOT's RN efforts determine if they are achieving intended results.

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