[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

[[Page 54455]]

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

[[Page 54456]]

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

[[Page 54457]]

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

[[Page 54458]]

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

[[Page 54459]]

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'').

[[Page 54460]]

    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

[[Page 54461]]

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

[[Page 54462]]

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

[[Page 54463]]

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.
    The requested waiver would have to conform to several requirements. 
The preference would have to