[Pages S7078-S7079]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

GENERAL ACCOUNTING OFFICE REPORT ON DISADVANTAGED BUSINESS ENTERPRISES
PROGRAM

Mr. McCONNELL. Mr. President, when the 105th Congress passed the
Transportation Equity Act for the 21st Century, TEA-21, there was a
vigorous and close debate about whether to convert the Disadvantaged
Business Enterprise Program into a race neutral program helping all
small disadvantaged businesses. It troubled many members of both Houses
that we lacked basic information about the characteristics of DBEs and
non-DBEs and about alleged discrimination in the transportation
industry. Consequently, I introduced, with widespread bi-partisan
support, an amendment to TEA-21, requiring the GAO to gather the
information Congress was missing that is essential to understanding the
DBE program. As Congressman Shuster, Chair of the House Committee on
Transportation and Infrastructure and the floor manager for the
transportation bill, emphasized during the House debate, the Act ``also
requires a GAO study that would examine whether there is continued
evidence of discrimination against small business owned and controlled
by socially and economically disadvantaged individuals. I believe such
a study will lay the groundwork for future reform.''
Three years later, the GAO has produced a comprehensive report on the
questions Congress asked it to investigate. This objective, impartial
report entitled, ``Disadvantaged Business Enterprises: Critical
Information is needed to Understand Program Impact,'' GAO Report GAO-
01-586, June 2001, is highly significant to the continuing legislative
and judicial debate over the DBE program. Professor George R. La Noue,
one of the distinguished scholars in this field, has analyzed the GAO's
report. He notes that the ``DBE program has been continuously subject
to litigation during its almost two decades of existence.'' Professor
La Noue concludes that ``the picture of the DBE program that emerges
from the GAO report is one of essential information that is missing, or
if available, does not support any finding of a national pattern of
discrimination against DBEs.'' I am pleased to provide Professor La
Noue's analysis of the GAO report, and I request that it be printed in
the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

An Analysis of ``Disadvantaged Business Enterprises: Critical
Information Is Needed to Understand Program Impact''

GAO Report [GAO-01-586 June 2001]

(By George R. La Noue, Professor of Political Science)

Director, Project on Civil Rights and Public Contracts, University of
Maryland, Baltimore County

During the 1998 consideration of the Transportation Equity
Act for the 21st Century (TEA-21), there was extensive debate
in both Houses about whether to make the DBE program race-
neutral. In the end, a compromise was reached to retain a
race conscious DBE program, while requiring the General
Accounting Office to make a three year study of the
characteristics of the DBEs and non-DBEs participating in
federal transportation programs and to gather existing
evidence of discrimination against DBEs. Such information was
intended to provide a solid basis of facts for courts,
legislators, and others grappling with the complex issues of
the constitutionality of the DBE program.
The GAO study now has been released and its conclusions are
highly significant. GAO performed its three year study by
obtaining data from 52 state DOT recipients (including the
District of Columbia and Puerto Rico) and 31 of the largest
(accounting for two-thirds of transit grant funds obligated
in 1999) transportation districts in the country. In addition
GAO staff interviewed representatives of interest groups on
both sides of the DBE question and analyzed the results of 14
transportation related disparity studies.
Following are GAO's major conclusions.

1. Discrimination complaints

GAO conducted a survey of discrimination complaints
received by USDOT and recipients. GAO found that, while USDOT
sometimes receives written complaints of discrimination, the
agency does not compile or analyze the information in those
complaints. GAO could not supply information on the number of
complaints filed, investigations launched, or their outcomes.
(p. 33) GAO also asked state and local transit recipients
about complaints they received and they had better data.
During 1999 and 2000, 81 percent of the recipients had no
complaints, while a total of 31 complaints were received by
the other recipients. Of these, 29 were investigated and
findings of discrimination were made only 4 times across the
nation .
The report concluded: Other factors may also limit the
ability of DBEs to compete for USDOT-state assisted
contracts. The majority of states and transit districts we
surveyed had not conducted any kind of analysis to identify
these factors. Using anecdotal information, we identified a
number of factors, or barriers, such as a lack of working
capital and limited access to bonding, that may limit DBEs'
ability to compete for contracts. However, there was little
agreement among the officials we contacted on whether these
factors were attributable to discrimination. (p.7)
In fact GAO reported there were few if any studies by
government agencies or industry groups regarding barriers to
DBE contracting. ``USDOT officials, however, stated that they
believe contract bundling is one of the largest barriers for
DBEs in competing for transportation contracts.'' (p. 35)
That, of course, is not a problem caused by discrimination.

2. Disparity studies

GAO also reviewed 14 transportation-specific disparity
studies completed between 1996 and 2000. GAO examined these
studies because they might be a source of evidence
about discrimination against DBEs and because USDOT
permits recipients to use disparity studies to set annual
goals and to determine the level of discrimination these
goals purportedly are remedying. GAO found that about 30
percent of the recipients surveyed used disparity studies
to set their fy 2000 goals. (p. 29).
GAO found that: the limited data used to calculate
disparities, compounded by the methodological weaknesses,
create uncertainties about the studies findings. . . . While
not all studies suffered from every problem, each suffered
enough problems to make its findings questionable. We
recognize there are difficulties inherent in conducting
disparity studies and that such limitations are common to
social science research; however, the studies we reviewed did
not sufficiently address such problems or disclose their
limitations. (p.29)
GAO then detailed disparity study problems, particularly in
calculating DBE availability. These problems are important
not only because they undermine the validity of the disparity
studies involved, but because these same problems exist in
the regulations USDOT issued regarding annual goal setting.
USDOT as a practical matter permits recipients to use a wide
variety of sources to measure availability on which goals are
then based.
GAO made other specific criticisms of the studies. For
example, the studies did not have information on firm
qualifications or capacities; they failed to analyze both the
dollars and contracts awarded and sometimes did not have
subcontracting data. This

[[Page S7079]]

was important: Because MBE/WBEs are more likely to be awarded
subcontracts than prime contracts, MBEs/WBEs may appear to be
underutilized when the focus remains on prime contractor
data. Furthermore, although some studies did include
calculations based on the number of contracts, all but two
based their determination of disparities on only the dollar
amounts of the contracts. Because MBEs/WBEs tend to be
smaller than non-MBEs/WBEs, they often are unable to perform
on larger contracts. Therefore, it would appear that they
were awarded a disproportionately smaller amount of contract
dollars. (p. 32) (see data on contracting awards on p. 51)
GAO's conclusion here is significant because the USDOT
regulations measure utilization only in dollars, not
contracts, and annual goals are set based on total dollars
rather than on the DBE share of subcontracting dollars.
Finally GAO notes that although USDOT advised recipients
that disparity studies should be ``reliable,'' USDOT provided
no guidance on what would be a reliable study. GAO concluded
that: USDOT's guidance does not, for example, caution against
using studies that contain the types of data and
methodological problems that we identified above. Without
explicit guidance on what makes a disparity study reliable,
states and transit authorities risk using studies that may
not provide accurate information in setting DBE goals. (p.
32)
GAO's finding about the unreliability of disparity studies
is consistent with the findings of every court that has
examined the merits of such studies after discovery and
trial.

3. Discontinuing Programs

One of the arguments used in the TEA-21 debates and
defendant's trial briefs is the assertion, often anecdotal,
that without goals, DBE participation would decline
precipitously. The difficulty with that assertion, even if
true, is that the decline in DBE participation may be the
result of previous overutilization caused by goals set too
high or because when a program is struck down DBEs may have
little incentive to seek or maintain certification.
But is the basic assertion true? It turned out that 10 of
12 recipients with discontinued programs did not know what
the DBE participation result was. For instance, although
Michigan was cited by DBE proponents in the TEA-21 debate as
an example of DBE utilization decline after Michigan Road
Builders Assn. v. Millikin (1987) struck down the state
highway MBE program, GAO reports: Michigan could not provide
us with minority and women owned business participation data
in state highway contracting for the years immediately before
and after it discontinued its program. Furthermore, Michigan
officials stated that the analysis showing the decline
that is often cited was a one-time-only analysis and that
analysis is no longer available. Consequently we can not
verify the number cited during the debate (p.37)

4. Missing information

Much of the above criticisms GAO cast in terms of a lack of
information, but there were other key items missing as well.
GAO had planned to survey all transit authorities receiving
federal funds, but FTA does not have a complete list. (p. 74)
When the 83 state and transit recipients were surveyed, only
40% or less of the respondents could report the gross
revenues of the DBEs that won contracts. Less than 25% of the
respondents could report the gross revenues of the DBEs that
did not win contracts. (pp. 52-55) Only about a third of the
agencies could report data on the personal net worth of DBE
owners, although TEA-21 regulations require that such owners
net worth not exceed $750,000.
Only a handful of respondents could report data on the
gross revenues or owner net worth characteristics of non-DBE
firms. (p. 64) While 79 respondents could report data about
subcontracts awarded DBEs, only 28 respondents could report
similar data for non-DBEs. That means that most respondents
did not regard comparing DBE and non-DBE subcontractor
utilization relevant in setting goals or in determining
whether discrimination exists.
Nor are respondents acquiring relevant information: 98.8%
have not conducted any study determining if awarding prime or
sub contracts to DBEs affects contract costs; 67.5% no study
on discrimination against DBE firms; 84.2% no study of
discrimination against DBEs by financial credit, insurance or
bond markets; 79.5% no study of factors making it difficult
for DBEs to compete; and 92.8% no study on the impact of the
DBE program on competition and the creation of jobs. (pp. 66-
68). Only 26.5% of the respondents have developed and
implemented use of a bidders list, although the regulations
require such.
The DBE program has been continuously subject to litigation
during its almost two decades of existence. Overall, the
picture of the DBE program that emerges from the GAO report
is one of essential information that is missing, or if
available, does not support any finding of a national pattern
of discrimination against DBEs.

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