Supplemental notice of proposed rulemaking (SNPRM)

[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.