April 15, 2010 - Item 37 - Executive Management and Audit Committee

Item 37

Los Angeles County Metropolitan Transportation Authority Performance Audit of the SBE and DBE Goal Development & Participation Process Presented by: Thompson, Cobb, Bazilio & Associates, PC and Colette Holt & Associates

Executive Management and Audit Committee April 15, 2010

Objectives   

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Evaluate adequacy of DBE & SBE goals & participation Evaluate DBE participation vs. goals & compare to other CA agencies Compare Metro’s goal setting, outreach & program management methodologies to other agencies Evaluate how Metro can increase DBE & SBE participation

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Findings 

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Metro’s DBE annual goal setting process complies with Part 26 but Metro should explore other goal setting methodologies The required change from a race-conscious to a race-neutral DBE program has significantly reduced DBE utilization SBE participation could be significantly increased through aggressive expansion of the SBE program

2

Findings, cont. 

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DEOD has implemented many outreach activities but more could be done Metro’s SBE program is more restrictive than other CA agencies

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Recommendations 

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Prioritize DEOD’s workload to develop a bidders list in compliance with Part 26 & to facilitate possible annual goal setting Expand SBE eligibility criteria to increase the owner’s personal net worth limit to $750K and adopt the SBA size standards Expand the SBE program to low bid & federallyfunded contracts

4

Recommendations, cont. 

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Re-establish the “shared responsibility” program for federally-funded & state- & locally-funded contracts Explore additional outreach & support activities, including    

Unbundling large contracts Implementing a supportive services program Adopting a mentor-protégé program Implementing a SBE Target Market program

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DBE Annual Goal Development Methodology

Federal Regulations  

49 C.F.R. Part 26 governs the DBE program Two types of goal setting 

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Overall, annual DBE for the portion of federallyassisted contracts (§ 26.45)  Various methods permitted to set annual goal Contract goal for specific solicitations (§ 26.51)

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DBE Annual Goal Setting 

Two step process under § 26.45 

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Step 1: estimate the base figure of current DBE availability (§ 26.45(c)) Step 2: estimate what the step 1 figure would be “but for” discrimination & consider whether to adjust it (§ 26.45(d))

Estimate the portion of the goal to be met through race-neutral vs. race-conscious measures 7

DBE Annual Goal Setting, cont. 

Step 1 methods to estimate the base figure of current DBE availability 

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Divide the DBE directory over Census Bureau County Business Patterns data & weight results by industry category share (e.g., heavy civil construction, trucking, etc.) of federal dollars– Metro’s choice Use the agency’s bidders’ list Perform a disparity study Adopt the goal of another recipient Apply any other approved method 8

DBE Annual Goal Setting, cont. 

Step 2 possible adjustment of DBE availability “but for” discrimination 

The agency must examine:  

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The agency may examine:  

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DBE capacity, as measured by past DBE utilization Evidence from any disparity studies in the jurisdiction Statistical disparities in DBEs’ access to financing, bonding & insurance Relevant data on employment, self-employment, education, training & union apprenticeship programs

Any adjustment must be based on “demonstrable evidence that is logically related to the effects for which adjustment is sought” 9

DBE Contract Goal Setting   

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Governed by § 26.51 Goals must reflect subcontracting opportunities of the particular solicitation Contract goals must cumulatively result in meeting any portion of the annual goal not met through race-neutral measures The agency must monitor the use of contract goals & race-neutral measures to meet the annual goal

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Metro’s FFY 2010 Annual DBE Goal Setting 

Step 1: divided the DBE directory by County Business Pattern data  

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1.Established the geographic market = 6 counties 2. Determine federal funding percentage by work description. 33% NAICS 54, 50% NAICS 23 & 17% NAICS 42. 2. Determined the number of DBEs in the CA UCP in the relevant NAICS codes = 1,100 NAICS 54, 301 NAICS 23 & 70 NAICS 42. 3. Determined all firms in CBP data = 13,679 NAICS 54, 10,735 NAICS 23 & 2,159 NAICS 42. 4. Performed calculation: (1,100/13,679 x 33%) +(301/10,735 x 50%) + (70/2,159 x 17%) = 4.60% 5. Rounded up to 5% 11

Metro’s FFY 2010 Annual DBE Goal Setting, cont. 

Step 2: adjusted rounded base figure of 5% 

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1. Determined the median past DBE utilization over the last 4 years = 10.5% 2. Divide the difference between 10.5% and 5% by two = 2.75% 3. Added 2.75% to 5% = 7.75% 4. Rounded 7.75% to 8%

Overall FFY 2010 DBE goal = 8% 8% will be achieved through solely race-neutral measures 12