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EXECUTIVE MANAGEMENT COMMITTEEJANUARY 16, 2014

SUBJECT: DISADVANTAGED BUSINESS ENTERPRISE AND SMALL BUSINESSENTERPRISE PROGRAMS

ACTION: ADOPT SMALL BUSINESS SET-ASIDE POLICY FORDISADVANTAGED BUSINESS ENTERPRISE AND SMALL BUSINESSENTERPRISE PROGRAMS

RECOMMENDATION

A. Adopt the race-neutral Small Business Set-Aside Policy for Federal TransitAdministration (FTA) funded contracts and amend the Metro DisadvantagedBusiness Enterprise (DBE) Program in accordance with the US Department ofTransportation (USDOT) DBE Program final rule 49 Code of Federal Regulation(CFR) Part 26.

B. Adopt the race-neutral Small Business Set-Aside Policy for non-federally fundedcompetitively negotiated contracts and amend the Metro Small Business Enterprise(SBE) Program.

ISSUE

In February 2012, federal recipients were required to submit to the FTA for approval, aproposal to add a new small business component to the DBE program, 49 CFR Part26.39 Fostering Small Business Participation. Metro submitted its proposal toimplement a race-neutral small business set-aside program on FTA-funded contractsand was granted approval.

Staff also recommends authorization to implement the race-neutral set-aside programfor non-federally funded competitively negotiated contracts, as a new component to theMetro SBE Program.

Adoption of the recommendation will allow Metro, as an acquisition strategy, to set­aside applicable contracts to reserve or limit competition only among Metro SBEcertified firms. When an SBE firm is awarded a contract using the set-aside, SBEparticipation on FTA-funded contracts will be counted toward the Metro 27% overall

DSE goal when the SSE is also certified as a DSE firm. SSE participation on non­federally funded contracts when using the set-aside will be counted towards the Metro30% SSE overall goal.

The set-aside program is designed to increase opportunities for certified firms to bid orpropose directly to Metro as prime contractors, consultants and suppliers to buildcapacity in meaningful technical areas within Metro contracting.

DISCUSSION

Staff recommends that the set-aside policy apply to FTA funded and non-federallyfunded acquisitions identified as shown below.

Action Type Micro Informal Formal Acquisitions Applicable Applicable toPurchase Acquisitions to FTA Non -

Funded Federally-Acquisitions Funded

ACQuisitionsPCard Requires Three Competitive Bid or

Purchase Quotes Proposal>$0 ~3,000

Negotiated awards N/A >$3,000 :s;; $100,000 >$100,000 :s;; $1.0 Million Yes YesIfor Supplies,Equipment,Materials andServices including~rchitecture &Engineering

Contract awards N/A >$3,000 :s;; $100,000 >$100,000 :s;; $2.0 Million Yes Nounder sealed bidprocedures -except publicworks

Public Works N/A >$3,000 :s;;$100,000 >$100,000 :s;; $5.0 Million Yes No

While Metro can proceed with the set-aside element on non-federally fundedcompetitively negotiated acquisitions through Request for Proposals, legislation toamend the Public Utility Code and other statutes requiring award to the low responsivebidder is needed. Staff recommends introducing a bill in the current legislative calendarto amend the governing statutes to allow set-asides to this set of acquisitions.

In summary, the set-aside policy contains the following provisions:

1. A firm must be certified by Metro as a SSE at the time of bid or proposalsubmission to be eligible for a set-aside contract award.

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2. Informal procurements, applicable to the funding source, will be exclusively set­aside for limited competition to SBE firms when there is a reasonableexpectation that there is a competitive pool of SBE firms to provide offers at fairand reasonable price.

3. Formal procurements, applicable to the funding source, will be set-aside if thereis a reasonable expectation that there is a competitive pool of SBE firms toprovide offers at fair and reasonable price.

4. If it is determined that an acquisition is not suitable for a full set-aside, Metro mayconsider a partial set-aside before issuing the requirement for full and opencompetition.

5. A SBE recommended for award using a set-aside must perform a commerciallyuseful function (CUF). An SBE is presumed to be performing a CUF when itperforms or exercises responsibility for at least 30 percent of the total cost of itscontract with its own work force. This provision is to ensure SBE firms manageand control the work and build capacity as prime contractors. This provision alsoseeks to prevent pass-throughs to ensure only eligible SBE firms participate inthe set-aside program.

Transportation Business Advisory Council

On October 31, 2013, staff met with the Transportation Business Advisory Council(TBAC) Executive Board, and one of the items discussed was the proposed set-asideprogram. TBAC made initial recommendations for appropriate set-aside thresholds. InDecember 2013, staff provided the TBAC the draft DBE and SBE set-aside policies forreview and comment. In addition, staff provided a briefing on the policies at the January9,2013 TBAC meeting. TBAC provided written comments on December 26,2013.TBAC comments were addressed by staff.

Reporting

Staff will file an annual written report to the Metro Board addressing: (1) the totalnumber and dollar value of informal and formal acquisitions awarded (2) the total dollarvalue, and the percentage dollar value of acquisitions awarded to SBEs using the set­aside, and (3) recommendations for modifying the program, if applicable.

Other Agencies

Metro retained Colette Holt & Associates of Oakland, California to research 12agencies,1 set-aside policies. The survey obtained the following information for each

1 The agencies surveyed were Miami-Dade County; Bay Area Rapid Transit; California Department ofGeneral Services; Dallas Area Rapid Transit; US Small Business Administration; California Department of

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agency: the procurement dollar thresholds for set-aside contracts; the types of workavailable for set-aside contacts; the criteria used to determine adequate competition forset-aside contracts; and the criteria for eligibility for firms to participate in the set-asideprogram.

Six of the agencies surveyed have a SBE set-aside program. Of these, Bay Area RapidTransit and the Dallas Area Rapid Transit were most relevant to Metro because theyare large transit organizations using federal funds that provide services in highly diversecommunities and are applying the standards of the DBE program using the race-neutralelement of a small business set-aside. Survey results are provided in Attachment C.

The Construction Market Analysis report prepared by Leland Saylor Associatescautions Metro that efforts to minimize construction costs require that SBE and DBEgoals are reflective of an adequate number of available firms.

DETERMINATION OF SAFETY IMPACT

Approval of this item will have no direct impact on the safety of Metro's employees andcustomers.

FINANCIAL IMPACT

Funding to support the DBE Program is included in the FY14 budget for multiple capitaland non-capital projects. For activities that impact capital projects, funding has beenincluded in the life-of-project budget for each project.

ALTERNATIVES CONSIDERED

A small business element component of the DBE program is a federal requirement. TheBoard could choose not to adopt the recommended set-aside program to meet thisrequirement; however, staff believes the SBE set-aside program is a race-neutral bestpractice to build certified firm capacity.

NEXT STEPS

• The Diversity & Economic Opportunity and Procurement and Supply ChainManagement Departments will develop appropriate procedures forimplementation.

• Effective date for implementation is April 1, 2013.

Transportation; City of Los Angeles; Illinois Department of Transportation; Los Angeles Unified SchoolDistrict; Metrolink; and Metropolitan Water District of Southern California.

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ATTACHMENTS

Attachment A: Set-Aside Policy for DBE ProgramAttachment B: Set-Aside Policy for SBE ProgramAttachment C: Survey Results of Agency Set-Aside Programs

Prepared by: Tashai R. Smith, Director, Small Business Programs(213) 922-2128

Small Business Set-Aside Policy PageS

nAWJ.uf(~~MJt.Michelle Lopes Cald IIChief Administrative Services Officer

ArthUr~a~~ ~-------Chief Executive Officer

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ATTACHMENT A

DISADVANTAGED BUSINESS ENTERPRISE PROGRAM SET-ASIDE POLICY FORFEDERAL TRANSIT ADMINISTRATION FUNDED CONTRACTS

Small Business Set-Aside

1.0 Policy

49 Code of Federal Regulations (CFR) § 26.39, "Fostering Small Business Participation,"requires that the Disadvantaged Business Enterprise ("DBE") Program include an element tostructure contracting requirements to facilitate competition by small business enterprises (SBEs)on Federal Transit funded contracts. The purpose of the SBE set-aside is to award certainacquisitions exclusively to SBE firms by limiting competition to small businesses. This elementallows Metro to meet the maximum feasible portion of Metro's race-neutral portion of its overallDBE goal.

1.1 General

(a) Small business set-asides may be conducted by using any acquisition process authorized inMetro's Acquisition Policy and Procedures.

(b) A contract may not be awarded as a result of a small business set-aside if the cost to Metroexceeds the fair and reasonable price.

(c) Offers received from businesses for a set-aside acquisition that are not eligible as certifiedSBEs will be rejected.

1.2 Certification Eligibility Requirements

The Metro SBE program certification requirements are adopted for the DBE program SBE set­aside. To be eligible to participate in the set-aside program a business must be certified byMetro as a Small Business Enterprise (SBE) in the applicable North American IndustryClassification System (NAICS) codes for the solicited work, by the bid or proposal due date.

1.3 Commercially Useful Function

An SBE firm performs a commercially useful function (CUF) when it is responsible for theexecution of the work of the contract and is carrying out its responsibilities by actuallyperforming, managing, and supervising the work involved. An SBE does not perform a CUF if itsrole is limited to that of an extra participant in a transaction, contract, or project through whichfunds are passed in order to obtain the appearance of SBE participation. An SBE is presumedto be performing a CUF when it performs or exercise responsibility for at least 30 percent of thetotal cost of its contract with its own work force in accordance with 49 CFR Part §26.55.

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1.4 Setting Aside Acquisitions

1.4.1 The following acquisitions shall be eligible for use of the set-aside element:

Action Type Micro Purchase Informal Acquisitions Formal Acquisitions

PCard Purchase Requires Three Quotes Competitive Bid or>$0 :S$3,OOO Proposal

Negotiated awards for N/A >$3,000 ~ $100,000 >$100,000 ~ $1.0 MillionSupplies, Equipment,Materials and Servicesincluding Architecture& Engineering

Contract awards under N/A >$3,000 ~ $100,000 >$100,000 ~ $2.0 Millionsealed bid procedures- except public works

Public Works N/A >$3,000 ~ $100,000 >$100,000 ~ $5.0 Million

1.5 Partial Set-Aside

If it is determined that an acquisition is not suitable for a total set-aside, Metro may consider apartial set-aside before soliciting for full and open competition.

1.6 Cause for Not Setting Aside an Acquisition

The set-aside will not be applicable if it is determined that there are an insufficient number ofqualified small businesses capable of meeting Metro's requirements resulting in inadequatecompetition. Adequate competition is defined as two or more qualified firms.

1.7 Advertisement

Advertisement for set-aside acquisitions will follow existing Metro advertising policies includingnotifying small and disadvantaged businesses.

1.8 Misrepresentation

Suspension or debarment proceedings may be initiated against any firm that:

(a) attempts to participate in the SBE set-aside for FTA funded contracts under the 49 CFRPart 26 DBE Program regulation and does not meet the eligibility criteria stated in theCertification Standards for SBE firms for the set-aside program; or on the basis of false,fraudulent or deceitful statements; or under circumstances indicating a serious lack ofbusiness integrity or honesty.

(b) attempts to use false, fraudulent or deceitful statements or representations in order tomeet eligibility for the SBE set-aside requirements; or uses another firm that does notmeet the SBE eligibility criteria.

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1.9 Implementation

The Chief Executive Officer shall develop agency-wide policies and procedures necessary toimplement this policy.

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ATTACHMENT B

SMALL BUSINESS ENTERPRISE PROGRAM SET-ASIDE POLICY FOR NON-FEDERALLYFUNDED CONTRACTS

Small Business Set-Aside

1.0 Policy

The Metro Small Business Enterprise (SBE) program requires an element to structurecontracting requirements to facilitate competition by small business enterprises (SBEs) on non­federally funded contracts. The purpose of the SBE set-aside is to award certain acquisitionsexclusively to SBE firms by limiting competition to small businesses. This element allows Metroto meet the maximum feasible portion of Metro's race-neutral overall SBE goal.

1.1 General

(a) Small business set-asides may be conducted by using any acquisition process authorized inMetro's Acquisition Policy and Procedures.

(b) A contract may not be awarded as a result of a small business set-aside if the cost to Metroexceeds the fair and reasonable price.

(c) Offers received from businesses for a set-aside acquisition that are not eligible as certifiedSBEs will be rejected.

1.2 Certification Eligibility Requirements

The Metro SBE program certification requirements are adopted for the DBE program SBE set­aside. To be eligible to participate in the set-aside program a business must be certified byMetro as a Small Business Enterprise (SBE) in the applicable North American IndustryClassification System (NAICS) codes for the solicited work, by the bid or proposal due date.

1.3 Commercially Useful Function

An SBE firm performs a commercially useful function (CUF) when it is responsible for theexecution of the work of the contract and is carrying out its responsibilities by actuallyperforming, managing, and supervising the work involved. An SBE does not perform a CUF if itsrole is limited to that of an extra participant in a transaction, contract, or project through whichfunds are passed in order to obtain the appearance of SBE participation. An SBE is presumedto be performing a CUF when it performs or exercise responsibility for at least 30 percent of thetotal cost of its contract with its own work force in accordance with the meaning adopted in 49CFR Part §26.55.

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1.4 Setting Aside Acquisitions

1.4.1 The following acquisitions shall be eligible for use of the set-aside element:

Action Type Micro Purchase Informal Acquisitions Formal Acquisitions

PCard Purchase Requires Three Quotes Competitive Bid or>$0 :S$3,000 Proposal

Negotiated awards for N/A >$3,000 ~ $100,000 >$100,000 ~$1.0 MillionSupplies, Equipment,Materials and Servicesincluding Architecture& Engineering

1.5 Partial Set-Aside

If it is determined that an acquisition is not suitable for a total set-aside, Metro may consider apartial set-aside before soliciting for full and open competition.

1.6 Cause for Not Setting Aside an Acquisition

The set-aside will not be applicable if it is determined that there are an insufficient number ofqualified small businesses capable of meeting Metro's requirements resulting in inadequatecompetition. Adequate competition is defined as two or more qualified firms.

1.7 Advertisement

Advertisement for set-aside acquisitions will follow existing Metro advertising policies includingnotifying small and disadvantaged businesses.

1.8 Misrepresentation

Suspension or debarment proceedings may be initiated against any firm that:

(a) attempts to participate in the SSE set-aside for non-federally funded contracts under theSSE Program regulation and does not meet the eligibility criteria stated in the CertificationStandards for SSE firms for the set-aside program; or on the basis of false, fraudulent ordeceitful statements; or under circumstances indicating a serious lack of business integrityor honesty.

(b) attempts to use false, fraudulent or deceitful statements or representations in order tomeet eligibility for the SSE set-aside requirements; or uses another firm that does notmeet the SSE eligibility criteria.

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1.9 Implementation

The Chief Executive Officer shall develop agency-wide policies and procedures necessary toimplement this policy.

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ATTACHMENT C

SUMMARY OF AGENCIES WITH SET-ASIDE PROGRAMS

Bay Area RapidTransit

Dallas Area RapidTransit

CaliforniaDepartment ofGeneral Services

y

y

y

Eligible contracts cannot exceed $2M for No factors to ensureconstruction; $3M for professional services; competition are specified inand $3M for procurement contracts the program documentAll contracts for all procurement types less Contract opportunities are setthan $2.5M are eligible to be procured aside based on the availabilityusing the set-aside of SBEsEligible contracts are those for goods, The agency's buyer mustservices and information technology obtain at least three quotescontracts valued between $>5,000 and from small businesses<$100,000, and public works contracts lessthan $250,000

Miami-Dade County

Small BusinessAdministration

Illinois Department ofTransportation

y

y

y

All purchases for goods and services valuedup to $100,000.

Contracts between $3,000 and $150,000are reserved for Small Businesses ("SBs").

Contracts are selected each year for set­aside program

Eligible for set-aside when atleast three or more certifiedSBE firms are available.Contracts less than $150,000may be set-aside if at least tworesponsible SBs are available.

Eligible for set-aside when atleast three or more certifiedSBE firms are available.

City of Los Angeles N

County of Los Angeles N

California NDepartment ofTransportationLos Angeles Unified NSchool District

Metrolink NMetropolitan Water NDistrict of SouthernCalifornia

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