Program Review. California Local Agency Disadvantaged Business Enterprise Good Faith Effort Review. June 2014 FINAL REPORT. FHWA California Division

Transcription

1 Program Review FHWA California Division California Department of Transportation California Local Agency Disadvantaged Business Enterprise Good Faith Effort Review June 2014 FINAL REPORT

2 Table of Contents Executive Summary... 1 Background... 2 Purpose and Objective... 3 Scope and Methodology... 4 Team Members... 5 Observations and Recommendations... 6 Conclusion... 8 Appendix A... 9 Appendix B... 10

3 Executive Summary The California Department of Transportation (Caltrans) does not provide adequate oversight over the quality of the good faith effort (GFE) evaluations performed by local public agencies (LPAs). Only one of the randomly selected LPA GFE evaluations was in fact an adequate GFE. In all other cases (14) LPAs failed to fully consider all the relevant facts and reached erroneous conclusions. LPAs did not follow Caltrans documentation and important GFE evaluation requirements. Relatively few LPAs (6 of 15) provided the documentation of its GFE decision and only four of these LPAs considered the DBE commitments of the second and third low bidders when evaluating the GFE of the apparent low bidder. A common critical error in every erroneous GFE decision was the failure to consider the adequacy of the bidder s solicitation of all DBEs available to perform work it solicited

4 Background The Department of Transportation s (DOT) Disadvantaged Business Enterprises (DBE) program was created to help socially and economically disadvantaged individuals who own and control small businesses to participate in contracting opportunities within the DOT financial assistance programs. The California Department of Transportation (Caltrans) had over $160 million of DBE participation in FY Caltrans receives over $3 billion annually from the Federal Highway Administration and approximately 40% of those funds are distributed to local public agencies (LPAs). LPAs place DBE contract goals on nearly all of its Federal-aid contracts and award those contracts to bidders who meet the goal or demonstrate adequate good faith efforts to meet the goal. The objective of this review was to determine if LPAs are making GFE decisions consistent with the regulatory guidance in 49 C.F.R. part 26, Appendix A and evaluate Caltrans oversight LPAs GFE decisions. Caltrans DBE Program Manager is in the Office of Business and Economic Opportunity. Local agency subrecipients are overseen by the Division of Local Assistance in Caltrans Headquarters Office and in each of Caltrans twelve districts. LPAs evaluate GFEs and make final GFE decisions. Caltrans made relatively recent improvements in its procedures to improve the evaluation of GFEs by LPAs. In response to the FHWA National Review Team (NRT) Summary Report on the American Recovery & Reinvestment Act for California, dated February 2, 2010, on March 15, 2011, Caltrans issued guidance to LPAs requiring the submission of an Evaluation of Good Faith Memorandum that cites reasons why the GFE is adequate or not. Also, it required LPAs to consider the commitments of the second and third low bidders when evaluating GFEs of the low bidder. See DLA-OB Evaluating and Submitting Good Faith Efforts. See Three webinars about the new guidance and the evaluation of GFEs were provided jointly by Caltrans and FHWA to LPAs when this guidance was issued

5 Purpose and Objective Anecdotally, the FHWA California Division and the Caltrans Division of Local Assistance heard about issues with LPA GFE decisions. Further, DBE participation monitoring by Caltrans Office of Business and Economic Opportunity indicated that there were a rather large amount of contracts awarded by LPAs to bidders who failed to meet the DBE goal (over 25%). The purpose of this review is to assess Caltrans oversight of LPAs GFE decisions, evaluate the adequacy of LPA GFE evaluations, and identify common GFE evaluation errors. In order to accomplish these objectives the following evaluations were performed: 1. Review LPA GFE procedures 2. Evaluate the adequacy of LPA GFE decisions 3. Review Caltrans oversight procedures of LPA GFE decisions. The information was used to develop recommendations that Caltrans is using to improve its DBE program

6 Scope and Methodology The scope of this review examined Caltrans and the LPAs current GFE processes and procedures, oversight of these, and adequacy of LPA GFE decisions. The process review focused on adherence to federal regulations and Caltrans own procedures. The following areas were reviewed: The Local Assistance Procedures Manual, Chapter 9, as modified by relevant Office Bulletins. A random sample of LPA GFE decisions The projects randomly sampled were local agency construction contracts authorized between July 1, 2011 and June 30, During the review, the team examined: the Caltrans and the LPAs process and procedures for GFE evaluation LPA GFE decision memos contractor-provided GFE documentation Caltrans oversight of LPA GFE decisions. Twenty-one LPA GFE decisions and contractor GFE documentation were examined. In six cases, the documentation was incomplete and the adequacy of the GFE decision could not be determined. The projects examined are from the LPAs listed in Appendix A

7 Team Members Lance Yokota, Civil Rights Program Manager, FHWA California Division Ramon Carlos, Caltrans DBE Program Manager Henry Wells, Caltrans Local Assistance Jeffery Skidmore, Caltrans Contract Evaluation Manager - 5 -

8 Observations and Recommendations Observation #1: Twenty-one awarded projects in which the bidder failed to meet the goal were examined. Fifteen had adequate documentation to determine the adequacy of the GFE decision. Only in one instance did the bidder demonstrate adequate GFEs. In all other instances (14) the LPAs failed to fully consider all the relevant facts and reached erroneous conclusions. A serious common error in all GFE evaluations is the LPA failed to critically evaluate the DBE solicitations of the bidder. Recipients should consider if the bidder solicited the interest of all certified DBEs who have the capability to perform the work of the contract. See 49 CFR Part 26, Appendix A, IV, A. Factors often overlooked include: solicited firms are not DBEs, solicited firms are not certified to perform the work solicited, the bidder solicited very few of the DBE firms available to perform each of the solicited work items, and solicited work is not subcontracted to anyone. Contact with the DBE must occur prior to conducting other factors the recipients should consider when evaluating GFEs (providing interested DBEs with adequate information about the contract, negotiating in good faith, assist DBEs with obtaining bonding, lines of credit, insurance, equipment, supplies, materials, etc.). Other lessons learned are listed in Appendix B. In each of these fourteen instances of inadequate GFEs the bidders actions were clearly not those one would expect of a bidder who is actively and aggressively trying to meet the goal. Recommendation: Conduct training for LPAs on the evaluation of GFEs and specifically address the lessons learned from this review. Resolution: Caltrans will conduct training for LPAs on the evaluation of GFEs, including lessons learned from this review by July

9 Observation #2: Caltrans requires LPAs to consider the commitments of the second and third low bidders when evaluating GFEs and document its GFE decision in a GFE memo that is submitted to the relevant Caltrans District Local Assistance Engineer (DLAE). See Caltrans DLA-OB Evaluating and Submitting Good Faith Efforts. The GFE decision was documented in only six instances and the LPA documented its consideration of the commitments of the second and third-low bidders in only two instances. Caltrans lacks a system to oversee the LPA GFE evaluations. Caltrans requires LPAs to submit the GFE memo. However, no systematic oversight of these decisions is performed and subsequently inadequate GFE evaluations in Observation #1 were not addressed. Recommendation: Implement a system for Caltrans to oversee the LPA GFE evaluations and enforce Caltrans requirement to document the LPA GFE decisions and consider the DBE commitments of the second and third low bidders. Resolution: By July 2014, local agencies will need Caltrans concurrence prior to the award of all contracts greater than $2 million where the bidder/proposer fails to meet the contract goal. By July 2014, Caltrans will implement a procedure to track awarded LPA contracts. After a year of concurrence on LPA GFE awards, a review of LPA GFE awards will be done to determine if additional oversight measures are needed

10 Conclusion Significant inadequacies were found in local public agencies (LPA s) evaluation of bidders good faith efforts (GFE) to meet DBE contract goals. Further, Caltrans lacks adequate oversight of this process. However, these issues will be shortly remedied by training of LPAs on the evaluation of GFEs, including addressing issues identified in this review. Further, LPAs will be required to receive Caltrans concurrence in the award of all contracts over $2 million where the bidder/proposer fails to meet the DBE goal. Additional oversight measures will be implemented if needed

11 Appendix A Good Faith Effort Evaluations Reviewed City of Clovis City of Elk Grove City of Fort Bragg City of Hayward City of Hermosa Beach Marin County City of Mill Valley Napa County City of Redding City of Roseville Sacramento County San Benito County City of San Diego City of San Jose Santa Clara County City of Simi Valley Solano County City of Sunnyvale Ventura County City of Windsor - 9 -

12 Appendix B Other Lessons Learned From LPA GFE Documentation LPA permitted the bidder to claim 60% DBE credit for bulk material supply, but gave 100% credit for the transportation of the material, instead of 60% credit. A listing as a bidder on a project is not an ad. It is the action of the publication, not the bidder. In one instance, work made available to DBEs (as documented by the bidder) was insufficient to meet the goal. Trucking and traffic control quotes used to verify the DBE commitment are rate sheets without additional documentation supporting how those rates substantiate the commitment amount. Several DBEs were reported on the Bidder s List. However, they were not used, nor reported as rejected DBEs. Bidder listed a lot of solicited firms. However, almost all of them are not DBEs. The bidder utilized a separate firm to conduct some of its GFE work which resulted in very few DBE firms being solicited and no ads soliciting DBE participation. No DBE commitment from the 2 nd and 3 rd low bidders does not automatically indicate that the low bidder demonstrated an adequate GFE

13 Report prepared by: Lance Yokota California FHWA Division Office 630 Capitol Mall, Suite Sacramento, CA Phone: (916) FAX: (916) For additional copies of this report, contact us