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Supplemental Notice of Proposed Rulemaking (SNPRM) for DBE Airport Concessions

 
[Federal Register: September 8, 2000 (Volume 65, Number 175)] [Proposed Rules] [Page 54454-54471] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr08se00-18] 
 
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DEPARTMENT OF TRANSPORTATION
 
Office of the Secretary
 
49 CFR Parts 23 and 26
 
[Docket OST-97-2550] RIN 2105-AB92
 
 Participation by Disadvantaged Business Enterprises in Department of Transportation Programs
 
AGENCY: Office of the Secretary, DOT.
 
ACTION: Supplemental notice of proposed rulemaking (SNPRM).
 
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SUMMARY: In May 1997, the Department issued a supplemental notice of proposed rulemaking (SNPRM) to revise its disadvantaged business enterprise (DBE) regulation. The SNPRM included proposals for revising the airport concessions portion of the DBE program. When the Department, in February 1999, issued the final rule based on the SNPRM, we did not publish a final version of the airport concessions proposal. This SNPRM seeks comments on an airport concessions subpart to part 26 that takes into account comments on the May 1997 SNPRM, adapts provisions of the rest of part 26 to the concessions context, and proposes options for provisions affecting car rental operations at airports. These options are based in part on a recent memorandum of understanding between the American Car Rental Association and the Airport Minority Advisory Council making recommendations to the Department on this aspect of the rulemaking.
 
DATES: Comments should be received by October 23, 2000. Late-filed comments will be considered to the extent practicable.
 
ADDRESSES: Comments should be sent to Docket Clerk, Attn: Docket No. OST-97-2550, Department of Transportation, 400 7th Street, SW., Room PL401, Washington DC, 20590. For the convenience of persons wishing to review the docket, it is requested that comments be sent in triplicate. Persons wishing their comments to be acknowledged should enclose a stamped, self-addressed postcard with their comments. The docket clerk will date stamp the postcard and return it to the sender. Comments may be reviewed at the above address from 9 a.m. through 5:30 p.m. Monday through Friday. Commenters may also submit their comments electronically. Instructions for electronic submission may be found at the following web address: http://dms.dot.gov/submit/ . The public may also review docketed comments electronically. The following web address provides instructions and access to the DOT electronic docket: http://dms.dot.gov/search/ .
 
FOR FURTHER INFORMATION CONTACT: Robert C. Ashby, Deputy Assistant General Counsel for Regulation and Enforcement, Department of Transportation, 400 7th Street, SW., Room 10424, Washington, DC 20590, phone numbers (202) 366-9310 (voice), (202) 366-9313 (fax), (202) 755- 7687 (TDD), bob.ashby@dot.gov (e-mail).
 
SUPPLEMENTARY INFORMATION: The airport concessions provision of the DBE regulation implements statutory authority that is separate from the authority for the DBE program for DOT-assisted contracting. It applies to an industry--airport concessions--that
 
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differs in a number of respects from the industries involved in DOT- assisted contracting, whether in airports, transit, or highways. The types of business opportunities this subpart concerns include concessionaires, management contractors, and firms that supply goods or services to them. None of this work is eligible for FAA grant funds. Concession agreements generally involve high rent payments to the airport, often computed as a percentage of the concessionaire's annual gross receipts or a fixed amount, whichever is greater. Larger concessionaires are often required to make a substantial investment in a leased facility, which may be amortized over a period exceeding five years. In some instances, airports grant a firm the exclusive privilege to provide a particular type of concession, such as food and beverage services, to the entire airport. Because of these unique features of airport concessions, this subpart differs in a number of respects from the provisions of the DOT- assisted contracting portions of the DBE rule. For example, the counting provisions of the rule, particularly with respect to car rental operations, differ significantly from those in the remainder of our DBE rules. Many provisions are parallel, however. Except with respect to size and personal net worth standards, which differ because of the economic characteristics of concessions, this subpart uses the certification standards of the rest of part 26. The basic narrow tailoring principles of part 26, including those pertaining to goal setting, apply here as well. We sought comment on this subpart in our May 1997 DBE supplemental notice of proposed rulemaking (SNPRM). Because three years have elapsed since the 1997 notice and because this version of the document is different from the 1997 version in a number of respects, we have decided to seek additional comment. This new SNPRM reflects many of the comments we received on the May 1997 notice. When we refer to comments in discussing the provisions of the SNPRM, we are referring to comments on the May 1997 notice.
 
Section-by-Section Discussion
 
FAA Guidance
 
 One comment asked whether the final rule modifies FAA guidance interpreting 49 CFR part 23. As under the rest of part 26 (see Sec. 26.15), the new rule would completely replace the old rule. Guidance issued under the concessions portion of old part 23 would no longer be in effect, once this subpart takes effect, because it interprets and implements a rule that has been removed from the Code of Federal Regulations. The provisions of the final version of this SNPRM would now govern and will be incorporated into any new technical assistance that FAA or DOT may issue. One piece of guidance we anticipate issuing at the time of, or shortly after, the publication of the final rule is a ``sample plan'' to assist airports in drafting their concessions program. We would put this sample plan on our web site, as we did for the sample plan we issued for the Federally- assisted contracts portion of part 26.
 
Section 26.111 Do the Provisions of Subparts A-F of this Part Apply to This Subpart?
 
 This provision says that the rest of part 26 applies to the airport concessions program, except where this subpart provides differently.
 
Section 26.113 What Do the Terms Used in This Subpart Mean?
 
 The concession provisions in 49 CFR part 23 incorporated the definition of ``affiliation'' from regulations of the Small Business Administration (SBA) 13 CFR part 121. Under part 121, affiliation may arise through joint venture arrangements, requiring the parties to combine their gross receipts in making a determination of business size. The SNPRM proposed to delete this provision from affiliation rules employed in the concession program. Two comments concurred with the proposal, and this SNPRM would adopt it. This SNPRM also reflects an amendment made to SBA's definition, which was published in the January 31, 1996 Federal Register (61 FR 3280). This SNPRM would add a new definition of ``car dealership,'' which is intended to clarify the SNPRM's provisions concerning purchase of vehicles by car rental operations and others. Five comments addressed the proposed exclusion from the definition of ``concession'' of firms that only pick up and/or discharge customers at the airport, and that have no on-airport facility. Three supported the change, while two requested clarification. This SNPRM clarifies that a car rental is considered ``at the airport'' if it has an on- airport facility, including a counter at which its services are sold to the public, or a ready return facility. The types of facilities cited in the SNPRM are intended as examples, and a firm need not have a particular one to qualify as a concessionaire. In addition, in response to comments and because the Department has received numerous questions on the issue, we are proposing to make contracts for on-airport advertising part of the definition of ``concession.'' Placing advertising signs and other media in public portions of an airport (e.g., the terminal, the roadways leading to the terminal) is analogous to other businesses that we view as concessions. A firm typically pays to lease space from the airport and places objects in airport buildings and grounds that are directed at the traveling public. This can be a significant business opportunity for small businesses, including DBEs. However, the advertising agency usually does not have an office or store on the airport from which it sells goods or services to the traveling public. As a result, there has been uncertainty about whether advertising meets the current definition of ``concession.'' To resolve this uncertainty, and because we believe that, as a matter of policy, it makes sense to make this type of business opportunity more readily available to DBEs, we are proposing to add this kind of advertising to the program. We seek comment on this proposal. Under this SNPRM, all entities meeting the definition of ``concession'' are included in the base from which overall DBE goals are calculated, regardless of when the contract was awarded. At the same time, the proposed rule makes clear that sponsors are not required to modify or abrogate an existing concession agreement (one executed prior to the effective date of the final rule) during its term. The same procedure was used when subpart F of 49 CFR part 23, was published in 1992. One issue of which we have become aware concerns businesses that may occupy a portion of airport property, serve the public in general, but do not focus on serving passengers who use airport for air transportation. For example, an airport may lease space on its property, perhaps some miles from the terminal, for a supermarket or other retail establishment that serves the local population but is not, except perhaps incidentally, used by persons who go to the terminal to catch a flight. We seek comment on whether we should exclude such businesses from the definition of concession. We might do so, for example, by changing this definition to refer to businesses that ``primarily serve the traveling public on the airport.'' In response to a comment, the term ``concessionaire'' has been modified to include firms that own and control a portion of a concession, in addition to those that own 100 percent of one. This
 
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is in accord with our policy established at the inception of the program that concessionaires include sublessees and joint venture partners. The term ``direct ownership arrangement'' has been modified to include a reference to licensees. We concur with a comment stating that while some corporations use licenses, others use franchises to establish non-company owned locations at airports. Since the two arrangements are not interchangeable as a matter of law, both are named. This SNPRM adopts the term ``management contract or subcontract'' with minor changes to clarify the coverage of subcontractors. This SNPRM retains the 1997 SNPRM's proposal that a ``small business concern'' must be an ``existing'' business. Of three comments on the matter, one concurred, a second opposed it, while a third requested clarification. The one opposed believes that the provision will unreasonably limit a sponsor's flexibility. It stated that it is relatively common for existing firms to form new, separate corporations or other legal entities for each of its airport concessions. The comment said that such firms have either formed the new legal entity or have applied for certification for the existing entity with the proviso that the new entity would be formed if awarded the contract. The Department believes that only existing firms should be permitted to apply for certification as a DBE. Approval of an application based on an assurance that an entity will subsequently form a firm would pose legal difficulties and undermine the integrity of the certification process. For example, an entity might refuse to form the legal structure that it represented in its application, leaving the sponsor with no recourse but to impose contract sanctions. An existing firm need not be operational or demonstrate that it previously performed contracts at the time of its application for certification. However, it would be required to specify its legal form and meet applicable eligibility standards. We have retained the provision that a firm cannot be denied certification solely because it was newly formed. For a sole proprietorship, which consists of a single individual, the applicant must, like other firms, submit appropriate information sufficient for the sponsor to make an eligibility determination. The 1997 SNPRM invited comments on whether the concession program should employ a personal net worth (PNW) standard. Under such a provision, if an individual presumed to be socially and economically disadvantaged has a PNW above the standard, the presumption of economic disadvantage would be rebutted. Six commenters favored using a PNW standard in the concession program, while one commenter (a firm) generally opposed the use of any standard, for many of the same reasons that commenters opposed adopting the standard in the rest of part 26 (e.g., a PNW standard ``penalizes success,'' the information collection requirements are too intrusive). Two sponsors recommended a threshold of $750,000 in order to be consistent with the figure proposed by DOT in the 1992 NPRM, and subsequently adopted in part 26, for the contracting program. Any higher level, said one, would raise an issue of fairness and credibility with the public. Others recommended $1.5 million and $2 million for the threshold, while another favored tying it to the relative difference in size standards in the contracting and concession programs. Another sponsor commented that it does not consider itself qualified to determine an appropriate level and asked the Department to provide a rationale for any that is selected. It suggested that an individual's ability or inability to obtain a letter of credit or a bond of a certain value would be a better indicator. It also commented that not all wealth (e.g., undeveloped land) appearing on a personal net worth statement has economic value for the owner. The Department discussed in some detail why it adopted a PNW standard in the rest of part 26, and this discussion applies in the concessions context as well. While we are well aware that this approach has disadvantages (e.g., some firms may be unable to participate in the program as a result), we believe that a PNW standard can be a useful safeguard against including in the program firms owned by individuals who it is difficult to view as economically disadvantaged. We believe that the concept of program eligibility based on economic disadvantage appears to call for a threshold for determining when an owner is no longer disadvantaged. The DBE concession program is not intended to assist enterprises owned and controlled by socially disadvantaged individuals who have accumulated substantial wealth. Also, in a narrowly tailored program that is subject to judicial review, we believe that using a PNW standard to ensure that the program is not overinclusive can be very important in defending the program in litigation. Because of differences between the concessions program and the DOT- assisted contracting program, however (e.g., the higher cash flow of concessions, the need to raise significant capital to compete at multiple airports), DOT has decided to adopt a different personal net PNW standard for the concessions program. We believe that $2 million will be a standard that will achieve the objectives of a PNW standard while not interfering unduly with the ability of firms to succeed in the concessions business. We believe that the $2 million limitation is high enough to enable an owner to expand to several airports, yet is sufficiently low to prevent the individual from amassing unlimited assets. The figure also considers the substantial capital investment and higher operating costs generally associated with a concession, compared to DOT-assisted contracts. The figure would be subject to the same exclusions as the PNW standard in the contracting program (see Sec. 26.67, ``What rules determine social and economic disadvantage?'')
 
Section 26.115 To Whom Does This Subpart Apply?
 
 Since we received no substantive comments opposed to this section, it has been included without change.
 
Section 26.117 What Are the Nondiscrimination and Assurance Requirements of This Subpart for Sponsors?
 
 These requirements were not the subject of substantive comments to the previous SNPRM, and have been included without change.
 
Section 26.119 What Information Do Sponsors Have to Retain and Report About the DBE Concession Program?
 
 This provision is essentially parallel to Sec. 26.11 and was included for the same reasons as discussed in the preamble to that section. The bidders' list requirement of that section is not repeated here, but does apply to firms seeking concession opportunities.
 
Section 26.121 Who Must Implement a DBE Concessions Plan?
 
 One comment concurred with this May 1997 version of this section, while another urged the Department to require small primary airports to submit DBE concession plans every two years, rather than annually. This SNPRM would retain the provision that requires only primary airport sponsors to implement a DBE concession plan. Sponsors of general aviation airports, reliever airports, and nonprimary commercial
 
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service airports are not subject to this requirement. Rather, they must take appropriate outreach steps to encourage available DBEs to participate as concessionaires whenever there is a concession opportunity. This provision significantly reduces burdens on them. As a clarification, the language of this version of the proposed regulatory text gives sponsors who own more than one airport the option to submit a concessions plan covering all of the airports. There would be separate goals for each, however. Under the SNPRM, submitting a plan would be a one-time exercise, with additional submissions needed only in the case of significant changes to a plan that FAA had approved. The FAA intends to issue, in conjunction with the publication of the final rule, guidance for the drafting of concessions plans. This will take the form of a sample concessions plan analogous to the sample DBE program currently on the Department's web site for the financial assistance portion of the DBE program.
 
Section 26.123 What is the basic DBE goal requirement for sponsors?
 
Section 26.125 What is the base for a sponsor's goal for concessions and covered activities other than car rentals?
 
Section 26.129 How are a sponsor's goals expressed and calculated?
 
Section 26.131 What are public participation requirements concerning a sponsor's goals?
 
Section 26.133 What are the contents of a sponsor's goal submissions to FAA?
 
Section 26.135 What does FAA do with your goal submission?
 
Section 26.137 What are the sponsor's obligations concerning the use of race-neutral and race-conscious measures?
 
Section 26.139 What are the steps a sponsor takes to meet its DBE goals?
 
 This proposed set of requirements for goal-setting differs from that of the May 1997 SNPRM in some respects. Most importantly, this SNPRM proposes the requirement that sponsors must have two overall goals: One for concessions and covered activities other than car rentals, and the second for car rentals. Car rental goals are discussed separately below. Consistent with statutory requirements, management contracts and purchases by concessions from DBE suppliers form part of the goal. Sponsors' goal submissions would cover a period of three to five years, in order to reduce the administrative burdens associated with the goal calculation and review process. The submissions would include goals for each year in the period, however. If circumstances changed significantly during this period, recipients would have to make a mid- course adjustment. We propose that sponsors would calculate their goals by using methods parallel to those used in Federally-assisted contracting under the rest of part 26. This approach to goal-setting is by now familiar to airports, since they have already used it in their Federally- assisted contracting DBE programs. We seek comment on whether there should be any adjustments made to these requirements in view of the differences between contracting and concessions. In the May 1997 SNPRM and the current rule, the Department proposed that sponsors could base goals on the number of concessions, rather than the dollar volume of concessions. While this approach appears permitted by the language of the concessions statute, it has been used infrequently. It may be less suited to measuring the ``level playing field'' that we seek to describe in the goal setting process. For this reason, we propose that a sponsor would have to use the program waiver process of Sec. 26.15 to employ this approach. To ensure legal sufficiency of such a waiver request, the FAA Chief Counsel's office would concur in any waiver request before it was sent to the Administrator for action. The only situation we foresee in which this approach would be necessary is one in which the airport does not know the gross receipts of all or a significant portion of its concessionaires. One alternative would be to require concessionaires to make this information available to airports, though we recognize that the businesses might prefer to keep this information confidential. We seek comment on the best way of resolving this issue. The proposed rule notes that a firm's overall receipts from non- concession activities do not form part of the base for goals. For example, airline and other aeronautical activities are not considered concessions. Therefore, the portion of a food service business's receipts from catering to airlines would not be part of the base for goals. Comments were mixed on the 1997 SNPRM's proposals to require sponsors to provide for public participation in setting overall goals. Some felt the process would be burdensome and of little value. Since sponsors are generally public agencies, information on their concession plans is readily available to the public, commenters said. While this true, sponsors do not uniformly invite input from interested persons or groups when establishing overall goals. We believe that the process will assist in setting the goals at levels that are reasonable and consistent with the factors upon which goals are based. The objective of the process is to involve as many stakeholders as possible and to do so prior to setting the goals. Therefore, this SNRM retains the public participation provision with some modifications. It adds to the organizations that sponsors must consult. They now include, in addition to minority, women's, and concessionaire groups (changed from ``general contractor'' groups), trade associations representing concessionaires currently located at the airport as well as existing concessionaires themselves. The SNPRM would not pre-empt state or local freedom of information or sunshine act procedures. A sponsor is required to provide for public participation at the beginning of each 3-5 year goal submission process. The requirement to ``consult'' with organizations as referenced in the rule means that sponsors should conduct informal outreach and actively solicit their views. A public hearing is not required. Comments said that the public participation process is intended to benefit the sponsor, which is responsible for adopting and submitting acceptable goals. Further, the process does not confer any third party rights or private rights of action. While we concur with these statements, we have not adopted a recommendation to include disclaimers to this effect. Since the notice to be published advises that comments are for informational purposes only, we believe that it adequately expresses the intent and limitations of the public participation process. In connection with the public participation process, several comments recommended that overall goals for concessions be set on the same cycle as goals for DOT-assisted contracting, so that a single notice can be published concerning both. The Department has no objection to this approach. We will require goals (except for the first time) to be submitted on August 1, as is the case for Federally- assisted contracting goals, though of course concessions goals would not have to be submitted every year. The public participation process is not intended to substitute for the requirement that sponsors and concessionaires make good faith efforts in notifying and soliciting the interest of DBEs in specific concession offerings. We concur with a comment that public prebid or preproposal conferences provide an excellent forum in which to
 
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discuss all aspects of a contract offering, including DBE contract goals. However, such goals should initially be submitted as part of the sponsor's concession plan. The intent of the rule is that overall goals and contract goals are to be reviewed and approved by FAA prior to contract solicitation. As under the rest of part 26, this subpart prohibits group-specific goals. Goals must cover DBEs as a whole. However, as under the rest of part 26, recipients may seek a program waiver if they believe group- specific goals are necessary (see Sec. 26.15). In a narrowly tailored affirmative action program, sponsors need to consider two types of measures for meeting their goals: Race-neutral and race-conscious measures. This SNPRM lists several examples of each. The SNPRM notes that these efforts should be spread among various types of business opportunities, and not concentrated in one place. As under the rest of part 26, sponsors must estimate the portion of their goals they project meeting through race-conscious and race-neutral means. Sponsors would make this estimate in the same way they make the parallel estimate under the rest of part 26. Maintaining data on race- conscious and race-neutral participation would also be required. As generally under part 26, sponsors would not be penalized simply for failing to meet their overall goal, as long as they operate their program in good faith.
 
Section 26.141 How do concessionaires and covered activities other than car rentals meet concession-specific DBE goals?
 
Section 26.145 How do sponsors count DBE participation toward goals for items other than car rentals?
 
 The most common race-conscious measure sponsors are likely to use to obtain DBE participation is the concession-specific goal, analogous to the contract goal in the DOT-assisted contracting portion of part 26. As with contract goals, a concessionaire must either meet a concession-specific goal or demonstrate good faith efforts to the sponsor. For the most part, counting DBE participation toward concession-specific goals follows the same rules as counting DBE participation under the rest of part 26. There are some differences, however. The SNPRM would specify that costs in building concession facilities could count toward concession goals. One comment on the 1997 SNPRM concurred with the proposal to not require a DBE who performs a concession or management contract to perform at least 30 percent of the work with its own forces in order to be considered to perform a commercially useful function. Another comment disagreed, saying that 30 percent represents a reasonable minimum amount in a joint venture and anything less reduces the DBE's role to a passive one. The Department believes that the 30 percent rule may impose an unrealistically high standard for concessions and management contracts. DBE participation in these arrangements often is less, yet DBEs participate meaningfully. Moreover, a DBE partner in a joint venture must have a clearly defined role in order to qualify as eligible for participation. Accordingly, the SNPRM would not apply the 30 percent requirement to either concessions or management contracts. Nevertheless, recipients would be responsible for ensuring that DBEs perform a commercially useful function in order for their participation to count toward DBE goals. This section also proposes counting 100 percent of the amount of cost of materials and supplies obtained from DBE regular dealers. This differs from the contracts portion of part 26. The reason for the difference is that the 100 percent rule here appears more consistent with the concessions statute and its legislative history. We seek comment on this issue and on whether there should be additional concession-specific counting provisions.
 
Section 26.127 What is the base for a sponsor's goal for car rentals?
 
Section 26.143 How do car rental companies meet concession-specific DBE goals?
 
Section 26.147 How do sponsors count DBE participation toward car rental goals?
 
 Car rentals have long been the most difficult and contentious subject in the concessions rulemaking. Recently, the American Car Rental Association (ACRA), which represents many car rental companies, and the Airport Minority Advisory Committee (AMAC), which represents many DBE firms that work at airports, agreed on a memorandum of understanding concerning the treatment of car rental operations under this rule. The MOU makes a number of recommendations to the Department on this issue. For commenters' information, we are reproducing the text of this agreement below (signature lines and some duplicative heading material have been omitted):
 
Memorandum of Understanding Between the Airport Minority Advisory Council and the American Car Rental Association Members Including Alamo Rent-A-Car, Inc.; Budget Rent A Car Corp.; Dollar Rent A Car Systems Inc.; Enterprise Rent-A-Car Company; and, National Car Rental System, Inc.; The Hertz Corporation, and, Avis Rent A Car System, Inc. on Issues Relating to the Department of Transportation's Pending Regulations on Disadvantaged Business Enterprise Participation in Airport Concessions, March 13, 1999
 
I. The Parties to the Memorandum of Understanding
 
 This Memorandum of Understanding (``MOU'') is between the Airport Minority Advisory Council (``AMAC''), Alamo Rent-a-Car, Inc., Budget Rent A Car Corp., Dollar Rent A Car Systems, Inc., Enterprise Rent-a-Car Company, and National Car Rental System, Inc., each a member company of the American Car Rental Association (``ACRA''), the Hertz Corporation (``Hertz''), and Avis Rent A Car System, Inc. (``Avis''). The member companies of ACRA, Hertz and Avis are hereinafter collectively referred to as ``the car rental companies''. AMAC and the car rental companies are hereinafter collectively referred to as ``the Parties'' and individually as a ``Party''. This MOU expresses the consensus of the Parties regarding the subject matter hereof, and sets forth each Party's intent with regard to the issues discussed. This MOU is not intended as a contract; however, the Parties intend to act in accordance with the understandings contained herein.
 
II. Basis for Memorandum of Understanding
 
 Whereas: The Parties are keenly interested in assuring the continued viability of the federal disadvantaged business enterprise (''DBE'') airport concessions program; The Parties strongly believe that it is in their mutual interest and the interest of DBEs that the U.S. Department of Transportation (``DOT'') promulgate a final rule governing DBE participation in airport concessions as soon as possible; The Parties desire to assist DOT develop a final DBE airport concessions rule that is both practical and effective in terms of public policy and business practices; and The Parties have engaged in a process of constructive dialogue concerning certain critical issues regarding the objectives and content of a final DBE airport concessions program rule and the implementation of the rule. AMAC and the car rental companies do hereby agree to advance and advocate, both together and separately, in public and in private, the principles embodied in this MOU and to work to assure their inclusion in a final DOT rule governing DBE participation in airport concessions. Further, the Parties also agree to explore appropriate ways in which they can work together to enhance DBE business opportunities with and within the rental car industry.
 
III. DBE Dealer Size Standard
 
 AMAC and the car rental companies collectively recognize that the existing Small
 
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Business Administration (``SBA'') size standard for new car dealers should not be applied to the DBE airport concessions program because of the large volume of vehicles purchased by car rental companies through their fleet programs; and, AMAC and the car rental companies collectively urge DOT to adopt a new car dealer size standard of 500 or fewer employees as the criteria for determining whether a new car dealer meets the definition of a small business under the DBE airport concessions program.
 
IV. Unified Certification Program
 
 The Parties are aware that DOT has promulgated a new Unified Certification Program to promote more simplicity and uniformity in the DBE certification process for all DOT-assisted contracts, while at the same time maintaining the integrity of the process. Toward this latter goal, this new requirement includes appropriate review mechanisms for airports and due process safeguards for DBE firms. The Parties urge DOT to apply the Unified Certification Program requirements to the airport concessions program.
 
V. Federal and Airport DBE Participation Goals and Compliance by Car Rental Companies
 
 The Parties agree that 10 percent of the gross revenues generated by car rental concessions operating at federally-assisted airports is an appropriate nationwide aspirational goal for the DOT airport concessions program. The Parties believe that compliance by a car rental company with federal and individual airport DBE participation goals may be achieved either through direct ownership arrangements, through vendor services and purchases, or through a combination thereof. Further, the Parties agree that under federal law applicable to the DBE airport concessions program, with respect to car rental concessions DBE vendor purchases and/or direct ownership arrangements are equally valid and, accordingly, no preferences or quotas are permitted. The Parties urge DOT to include a clear statement of the law concerning this matter. Specifically, the final rule promulgated for DBE participation in airport car rental concessions should clearly state that ``good faith'' compliance efforts by a car rental company do not require the company to pursue direct ownership arrangements before pursuing vendor purchases.
 
VI. ``Good Faith'' Efforts and Compliance with DBE Goals
 
 The Parties believe that a ``good faith efforts'' standard substantially similar to the standard applicable to DBE participation in DOT-assisted contracts should be included in the final DOT airport concessions program rule. The Parties believe that the actions listed below are primary examples of bona fide good faith efforts with respect to DBE participation in airport concessions and that they should be acknowledged as such when undertaken by the car rental industry: Conduct a comprehensive survey of vendors to determine which qualify as DBE's for purposes of the airport concessions program and encourage other vendors who may be eligible to apply for certification. Identify opportunities for DBE's to provide goods and services, and engage in proactive outreach efforts to inform such firms of the opportunities. Join and support local and national minority, women, and small business organizations. Advertise in local and national DBE-focused publications for vendors that can provide needed goods and services. Make DBEs aware of solicitations in a timely manner and meet with firms to determine whether they fulfill requirements as car rental operators, or suppliers of goods and services. Document outreach efforts, including those that are unsuccessful. Whenever a new opportunity arises, use a combination of sources and outreach efforts (such as those cited above) to identify DBEs that fulfill the need.
 
VII. Ownership Arrangements
 
 The Parties encourage DOT to acknowledge that in the first instance a decision to enter into a direct ownership arrangement with a DBE firm is a discretionary matter for the car rental company. Thereafter, once a decision has been made the option to enter into a joint venture, franchise agreement, or other ownership transaction with a DBE firm for purposes of compliance with an airport's DBE goal (to operate a rental car concession or otherwise) is a business decision to be made exclusively by the car rental company and its potential DBE co-venturer, franchisee, or partner.
 
VIII. DBE Participation Goals and Car Rental Company Vehicle Purchases
 
 The Parties believe that it is essential for the final DOT airport concessions program rule to acknowledge and take into account the significance and the cost of new vehicles acquired by car rental companies (given that new vehicles constitute the bulk of a car rental company's vendor purchases). The Parties agree that the functions performed by dealers in transferring ownership of new vehicles are necessary and constitute a commercially useful function. Subject to the aggregate credit percentage limitation outlined below, when those functions are performed by a certified DBE vehicle dealer the Parties agree that a car rental company should be given full credit for the contract price of the vehicle toward the company's DBE compliance goal. However, the Parties further agree it is critical to encourage DBE participation in a wide array of business opportunities. Thus, the Parties recommend that not more than seventy (70) percent of a car rental company's DBE goal at an airport can be satisfied by new vehicle acquisitions. Nevertheless when an airport has established an approved DBE participation goal greater than 10 percent, the Parties recommend that the portion of the goal beyond 10 percent may be satisfied through additional vehicle acquisitions.
 
IX. National and Regional DBE Vendor Contracts; Geographic Preferences
 
 The Parties believe that the final DBE airport concessions program rule should take into account the use by car rental companies of national and regional vendor contracts for the acquisition of certain products and services utilized at multiple airport car rental concession locations. Given that such a contract may represent a potential growth opportunity, the Parties recommend that an airport serviced under such a contract with a certified DBE firm allocate and credit a pro rata share of the contract revenues toward the car rental company's DBE compliance goal. The allocations would be based on information provided by the car rental company, which would bear the responsibility for its accuracy, and would be subject to audit by DOT. The Parties recommend that, for federal DBE goal compliance purposes, DOT specify the nation as a whole as the market area from which a car rental company can seek DBE's to participate in an airport's concessions program.
 
X. Duration and Effect of MOU
 
 The Parties agree that policy recommendations contained in this MOU do not have the effect of law or supercede the DOT airport concessions program rules and regulations. Nor do the policy recommendations constitute an admission against interest with respect to the contents hereof or to the provisions of federal law authorizing the airport DBE concessions program. The Parties acknowledge that the car rental companies are subject to the provisions of the existing DOT airport concessions program rules until such time as new regulations are promulgated. The Parties agree that upon promulgation of a final airport DBE concessions rule that this MOU shall be of no further force or effect. The undersigned officers of AMAC and the car rental companies agree that their organizations, their members, and their representatives will support all of the terms of this Memorandum of Understanding in both public and private. To the extent necessary, AMAC and the car rental companies agree to meet with DOT representatives to urge the adoption of a final DOT DBE airport concessions rule consistent with the terms of this Memorandum of Understanding.
 
Addendum to the Memorandum of Understanding
 
 This Addendum to the Memorandum of Understanding dated March 13, 1999, (``Memorandum'') by and between Alamo Rent-a-Car, Inc.; Budget Rent A Car Corp.; Dollar Rent A Car Systems, Inc.; Enterprise Rent- A-Car Co.; National Car Rental System, Inc., each a member company of the American Car Rental Association (``ACRA''), The Hertz Corporation (``Hertz'') and Avis Rent A Car System, Inc. (``Avis''), (ACRA , Hertz and Avis are collectively referred to herein as the ``Companies'') and the Airport Minority Advisory Council (``AMAC'') is by and between the Companies, AMAC, and Thrifty Rent-A-Car Systems, Inc. (``Thrifty'').
 
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 Whereas, Thrifty is a member of ACRA; Whereas, Thrifty is by strategy and design a franchise system with more than 90% of its retail outlets worldwide owned by independent businesses who are licensed to use the Thrifty trade names, systems and technologies; and Whereas, Thrifty has adopted a program especially designed to increase diversity in our franchise owner base. Thrifty supports and agrees with all of the principles expressed in the Memorandum except for the statement in Paragraph 2, Article V regarding preferences and ``co-equal'' methods of car rental company compliance with Federal and airport DBE participation goals.
 
 The Department appreciates the efforts of AMAC and ACRA, and notes that their MOU provides useful information for the development of the Department's proposals in this SNPRM. Because the approach the MOU takes toward counting car rental DBE participation differs significantly from the counting approach taken by the rest of part 26, and because the dollar volumes of the car rental business at many airports is very high, we believe that it is best to incorporate the MOU's concepts in a separate portion of the DBE rule. Airports would have car rental goals that are separate from their other DBE goals, and the counting mechanism in this portion of the rule would apply only to car rental goals. The purpose of this separate treatment is to ensure that the car rental portion of an airport's concession operations does not so dominate the DBE concessions program that other types of concessions (e.g., retail stores in the terminal) are overlooked. The method for calculating car rental goals would essentially be the same as described above for other types of concessions. Both are modeled on the narrowly-tailored methods for goal setting in the DOT-assisted contracting portion of part 26. The Department seeks comment on an additional option for calculating car rental goals. This option envisions that car rental companies themselves would voluntarily establish nationwide goals for DBE participation. Following FAA approval, the companies would certify their compliance with this requirement to airports. The individual airports would not have the task of calculating their own car rental goals, and the companies would not have to work with multiple airports on car rental goals. This approach would therefore reduce administrative burdens on everyone concerned. It also responds to the desire of the parties to the MOU for a national approach to car rental goals. The companies would use a goal calculation approach like that described above for airports. We are aware that some airports may be concerned that this national approach might diminish their ability to respond to local conditions and constituencies. We seek comment on this point, and on how this concern is best balanced with this option's greater administrative efficiency. This option would also include a provision directing car rental companies to spread their DBE participation equitably throughout their systems, lest a company meet all its obligations in a few parts of the country to the exclusion of others. We do not believe this option is mutually exclusive with the proposal to authorize airports to set car rental goals. For example, the final rule might say that, when a car rental company had an FAA- approved national goal, local airports would accept their certification. Where a company did not have a national goal, or where there was a local company, the airport would set its own car rental goal. The Department seeks comments on these approaches and how they might work together. In both approaches, the companies would make good faith efforts to meet goals in a way parallel to that described above for airports. The proposed car rental provisions incorporate the list of good faith efforts mentioned in the MOU. They also restate the statutory provision that says that car rental companies are not required to change their corporate structure to comply with this regulation. This ``change to corporate structure'' language was the source of some comment on the May 1997 SNPRM. Three organizations commented on the meaning of the phrase. One firm stated that it consists of corporately- owned and managed operations at large or medium size airports except for certain pre-existing license agreements. When an opportunity arises, it acquires licenses at large or medium size airports. It comments that its firm is very much a system of airport operations owned and operated by a corporate entity. It believes that any rule that would compel it to abandon this structure would violate the statute. Further, the firm stated that any rule compelling it to make any detailed justification for its existing corporate structure would be unnecessary. Another comment expressed concern that DOT may be seeking to adopt a very narrow definition so that in some circumstances sponsors may argue that a specific concession bid requirement does not require a change in corporate structure. This commenter believes that such ambiguity can only give rise to future disagreements or conflicts between the car rental industry and sponsors. A summary of other points made by this comment follows. 
 
 Any attempt to force car rentals into direct ownership arrangements, either as a condition of bidding on a concession contract or as a determining factor in location of a concessionaire's facilities at an airport, directly violates both the language of the statute and intent of Congress. Each time a car rental sells a license or franchise to operate a car rental establishment at an airport, a change in corporate structure of the lessor or franchisor is required. Direct ownership possibilities do not arise frequently at airports across the country for most companies in the car rental industry. For larger nationwide car rentals, most of their airport locations are company owned and operated. For these larger firms, franchisees or licensees that do exist almost uniformly have perpetual franchises or licenses to operate at an airport or in a region. Thus, DOT and sponsors should not assume that just because a new concession contract is being bid at an airport, each car rental has an opportunity to engage in a direct ownership arrangement without changing its corporate structure. Car rentals may have franchises and licensees extensively during the early years of a firm's existence as they attempt to spread across the country. As these companies mature and reach all their desired markets, the parent company starts to buy back whatever franchises or licenses become available. Car rentals follow this basic strategy because, under federal law, they are prohibited from dictating pricing policies to franchisees and licensees. In order to build a truly nationwide car rental company, most corporations desire to control the quality of service, pricing, quality of vehicles rented, and as many other aspects of the rental transaction and the interaction with customers as possible. As a result, as franchises and licenses become available, car rentals tend to buy them back.
 
 The Department concurs that a decision to operate a car rental through a franchise or license, rather than directly by the corporation, changes a firm's corporate structure. The selling of a franchise or license is not explicitly referenced in the legislative history pertaining to change in corporate structure. Nevertheless, we believe that such a sale does constitute a ``transfer of assets,'' which is cited in the Congressional statement as an indicator of a change in corporate structure. We believe that a change in corporate structure includes a decision by a firm to sell a franchise or license to operate at a particular airport facility. If a corporation notifies a sponsor that it will sell a franchise or license to operate at the airport, the sponsor would be authorized to require the firm to make good faith efforts to meet a DBE goal. Good faith efforts would include
 
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notifying DBE firms of this opportunity and taking other appropriate steps. A third commenter believes that the provision would perpetuate a system in which DBEs are not provided opportunities to participate in direct ownership arrangements in the car rental industry. It comments that the broad definition of ``change to corporate structure'' proposed in the May 1997 SNPRM would eliminate any requirements for car rentals to make good faith efforts to involve DBEs in such arrangements. It recommends that DOT consider requiring car rentals to demonstrate positive efforts in this area, just as other concessionaires and DOT- assisted contractors must do. The Department believes that the current SNPRM, in its language concerning direct ownership arrangements, correctly interprets the constraints imposed by statute in levying requirements on car rentals and responds to the points made in the MOU. The SNPRM proposes a counting mechanism patterned after that of the MOU. One difference between the MOU and the SNPRM pertains to the percentage of a goal that may be met through vehicle purchases. The MOU provides that a car rental operation could meet up to 70 percent of its goal through vehicle acquisitions, with the rest presumably coming through vendor purchases and other means. The SNPRM incorporates this recommendation. However, the MOU also suggests that when an airport has established an approved DBE participation goal greater than 10 percent, the portion of the goal beyond 10 percent could be satisfied through additional vehicle acquisitions. The SNPRM does not include this latter provision. In our view, it places too much weight on the statutory aspirational 10 percent goal as an actual operational portion of the program. It also would have the effect of capping the proportion of DBE participation in car rentals from sources other than vehicle acquisitions to what may be less than one might expect in a ``level playing field'' situation. We do not think this is advisable as a matter of law or policy. However, we seek further comment on this issue. The SNPRM makes it clear that car rental companies are not required to meet their goals through direct ownership arrangements. However, any participation they choose to obtain through such arrangements may be counted toward their goals.
 
Section 26.149 What Certification Procedures and Standards Do Recipients Use To Certify DBE Concessionaires?
 
 The SNPRM proposes that, with the exceptions listed in this section, certification for the concessions program be treated the same as certification for other purposes under part 26. The exceptions concern such subjects as size, personal net worth, and affiliation. The SNPRM does not propose to adopt certain additional changes that commenters on the May 1997 SNPRM requested. One comment requested that sponsors be allowed to report to FAA, but not count toward their goals, a DBE who is a limited partner in a limited partnership. The comment said that in a concession such as a duty-free shop, the functions of a limited partner, although not as substantial as a general partner or a joint venture partner, are nevertheless meaningful. This sponsor commented that DBEs were reluctant to enter into joint ventures with non-DBEs for duty-free concessions because even if the DBE's interest is relatively small, it would be potentially responsible for liabilities and obligations of the entire joint venture or partnership. The limited partner in a limited partnership cannot, by statute, exercise control over the operations of the business. In view of this, we take the position that a limited partnership is not eligible for certification if the general partner is a non-DBE or a non- disadvantaged individual. The DBE participation that sponsors report to FAA annually includes accomplishments in meeting the overall goal. Only those firms certified as DBEs in accordance with this part can be counted toward meeting the goals. The definition of ``joint venture'' in Sec. 26.5 has been modified to specify that the capital contribution by the DBE joint venture partner must be commensurate with its ownership interest. One commenter recommended that the rule provide guidelines on the eligibility of Limited Liability Corporations (LLC), saying that this arrangement is commonly used in concessions throughout the country. The comment also said:
 
* * * one of its basic characteristics is that management of the company may be rotated among its members (same as shareholders in a corporation). Thus, it is important that sponsors obtain written assurances that no management responsibility changes will be made within the firm without prior notification to (the) sponsor. The rest of the business structure parallels a corporation, and should be reviewed as such.
 
 The Department's research indicates that LLCs vary in structure from one state to another. In the absence of a uniform national statute or standards, we have decided not to specifically address LLCs in the rule. However, like every other applicant for certification, a business that proposes to operate as an LLC must meet the eligibility standards adopted in the final rule. Under Sec. 26.83(i), a DBE is required to inform the recipient (or UCP) in writing of any change in its circumstances affecting its ability to meet eligibility standards, including control, or any material changes to the information in its application form. The written notice must be provided within 30 days of occurrence of the change. We believe that this procedure will enable recipients to decide whether a firm continues to qualify as a DBE. We do not concur that a DBE should be required to notify the recipient prior to making changes to its management responsibilities. As discussed in connection with the definition of ``existing firm'' in Sec. 26.111, a recipient can deny certification or recertification only to existing firms. It cannot make a determination based on a proposed change, nor should it be required to give advice to a firm on the acceptability of the proposed change. The May 1997 SNPRM did not propose to permit ``dealers in development'' (i.e., dealers participating in manufacturers' development programs that did not fully meet part 26 ownership and control criteria) to be certified as DBEs. All four comments on the matter opposed the Department's approach. Comments to the May 1997 SNPRM repeated assurances that although disadvantaged individuals own less than 51 percent of these businesses, they exercise control over the daily operations. Further, allowing their participation would accelerate the redemption by these owners of preferred stock held by the manufacturer and hence, their road to 51 percent ownership. Other comments said that the proposal excludes small disadvantaged businesses from reaping the benefits of the DBE program in favor of larger, ``less disadvantaged'' businesses that have been able to accumulate the more than $1 million in start-up costs needed to capitalize a dealership. Comments requested that DOT grant a narrowly-crafted exception to the DBE ownership requirements which permits these dealers participating in a recognized development program to be eligible as DBE vendors. The car rental industry needs a large number of certified DBE new car dealers from
 
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which to purchase cars, a comment says, to assist them in meeting goals. In the preamble to the May 1997 SNPRM, we explained why these arrangements do not meet eligibility standards for ownership or control. In particular, to qualify as a DBE, the control of the operations of a business must rest with one or more disadvantaged individuals who own it. In the case of some dealers in development, however, disadvantaged individuals own less than 51 percent of the business. Thus, control of the firm cannot rest with disadvantaged individuals, as required under the statutory definition of a DBE, if the manufacturer is a non-DBE. The Department does not have the authority to grant an exemption, however carefully crafted, from a statutory requirement. We also concluded that the dealers in development and the manufacturers could be viewed as having a franchisor/franchisee relationship. Under this final rule, a business operating under a franchise agreement is eligible for certification only if it qualifies as a DBE and the franchisor is not affiliated with the franchisee. If the firms are affiliated, then their gross receipts are combined when making a size determination. Since the manufacturer in a dealer development program controls the business, affiliation is inferred. Assuming that the number of employees of the manufacturer exceeds the limit of 500 set by this regulation, dealers in development would not meet the applicable size standard. Based on this analysis, these arrangements do not meet any of the three statutory standards for DBE eligibility--ownership, control, and size. Since the manufacturer owns as much as 80 percent of the business, we would generally presume that it would retain 80 percent of profits made through participating in the DBE program. We would also expect the DBE generally to retain 20 percent. We believe that counting such dollars as meeting DBE goals conflicts with the goals and objectives of the program. Further, with the very extensive resources available to the manufacturer, these arrangements could be expected to compete successfully against smaller firms, including DBEs meeting eligibility criteria. DBEs could be prevented from gaining the benefits of the program in favor of firms that do not qualify under such criteria. This result also runs counter to the program's goals and objectives. We stated in the preamble to the May 1997 SNPRM that in the event the Department adopts a developmental program or a mentor-protege program for concessions at a future date, we would reexamine our position to determine if dealers in development qualify. The DOT- assisted contracting portion of part 26 does provide for a mentor- protege program. We point this out simply to observe that DBEs participating as proteges in this program must meet eligibility standards. For these reasons, we have not adopted the recommendation to allow dealers in development to qualify as DBE participation in the concession program. The fact that the Department cannot make an exception to the certification standards for dealers in development should by no means be taken as a disparagement of the program. The Department applauds the goals of the program and the noteworthy efforts of the major automobile manufacturers to provide opportunities for fledgling businesses to grow into self-sustaining entities.
 
Section 26.151 What Monitoring and Compliance Procedures Must Sponsors Follow?
 
 This section is not changed substantively from the May 1997 version. The principles established under the DBE contracting program for monitoring prime contractors' compliance may also be useful in the concession program. A primary purpose of the procedures is to verify that the work committed to DBEs as a condition of contract award is actually performed by the DBEs. Sponsors would generally rely on local law to enforce contractual provisions in the event of noncompliance. The grant legislation does not specify contract sanctions.
 
Section 26.153 Does a Sponsor Have To Change Existing Concession Agreements?
 
 This SNRM rule would retain the May 1997 provision that sponsors are not required to modify or abrogate existing concession agreements, defined as ones executed prior to the effective date of this part. Under the rule, it is the sponsor that establishes and levies individual contract goals. One commenter wanted to know whether bidders and proposers will be responsible for establishing these levels. As discussed above, however, sponsors must provide for public participation in goal-setting process, and overall goals depend, in part, on the percentage levels of individual contract goals.
 
Section 26.155 What Requirements Apply to Privately-Owned Terminal Buildings?
 
 This provision is identical to the version in the May 1997 SNPRM. We did not receive any comments on it.
 
Section 26.157 Can Sponsors Enter Into Long-Term, Exclusive Agreements With Concessionaires?
 
 This provision proposes that long-term, exclusive leases are prohibited, except where the sponsor obtains FAA approval. The section proposes a procedure for obtaining such approval, including a list of information FAA needs before it can grant this approval. DBE participation would be a key part of this information. Comments on the May 1997 version of this section generally favored requiring opportunities for DBE participation as part of a long-term, exclusive lease arrangement.
 
Section 26.159 Does This Subpart Preempt Local Requirements?
 
 This proposed section restates the statutory provision that the regulation does not preempt local requirements. Sponsors may, however, have to take steps to avoid situations where a local requirement conflicts with a Federal requirement. It should be noted also that this provision refers to substantive DBE and similar requirements of local entities, not to Federal requirements for confidentiality (e.g., with respect to information submitted in response to PNW requirements).
 
Section 26.161 Does This Subpart Permit Sponsors To Use Local Geographic Preferences?
 
 This SNPRM proposes to allow a geographical preference in concessions in limited situations. Several comments on the May 1997 SNPRM addressed this subject. One asked if a sponsor could deny a DBE an opportunity to compete for a contract solely because it resides outside a given geographic area. Another said that lack of guidance on the matter further frustrates reasonable means of compliance because sponsors do not consider the limitations in availability and competitive pricing in the sponsor's geographic area. Another comment also opposed local geographic preferences, saying that if the Department has concluded that Congress made a nationwide determination of discrimination in the airport concession industry, then any remedial action it takes, such as the DBE concession program, must be nationwide in scope. The comment urged the Department to correct this contradiction and prohibit local
 
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preferences in the DBE airport concession program unless a local governmental entity has made an independent determination of racial discrimination in the airport concession industry in the local geographic area. The comment states further:
 
 Sponsors must not be permitted to rely on an alleged congressional determination of nationwide discrimination to adopt local racial preferences. The Supreme Court declared in Croson: ``We have never approved extrapolation of discrimination in one jurisdiction from the experience of another * * *'' (S)everal firms in the (car rental) industry feature the vehicles of specific automobile manufacturers in their rental fleets. The industry's experience in the past has been that new car dealers selling these featured makes of vehicles are not available in all areas, or that local preferences encourage those dealers that are available to quote vehicle prices that are substantially higher than those dealers outside of the local geographic area.
 
 The Department recognizes that sponsors have a special stake in facilitating participation by firms doing business in their local areas, and it is not the purpose of the DBE program to intrude upon that mission. As noted, the prohibition on local geographical preferences in 49 CFR part 18 applies only to DOT-assisted contracts and not to concessions. Further, under part 18, geographical location can be a selection criterion, subject to certain limitations, when a recipient contracts for architectural and engineering services (49 CFR 18.36(c)(2)). At the same time, the Department recognizes that local geographic preferences have disadvantages, such as the elimination of the benefits of wider competition for business opportunities and the possible loss of opportunities for DBEs who are not located in the locality served by an airport. Based on these considerations, the Department has decided to propose allowing local geographical preferences, but only under limited circumstances. A sponsor would have to submit a program waiver request under Sec. 26.15 in order to secure approval for a geographic preference. The FAA Administrator would decide whether to grant the request.
Updated: Wednesday, June 26, 2013