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23 CHAPTER FOUR STATE DISADVANTAGED BUSINESS ENTERPRISE PROGRAM CHALLENGES AND SOLUTIONS This chapter discusses the challenges that survey respondents dent mentioned that economic difficulties have led to a rise in identified in meeting their goals for DBE participation and contractor payment issues, noting that prompt payment claims pairs them with solutions--both race-neutral strategies that in this state have doubled. states have found to be effective and additional solutions that respondents described in their open-ended comments. This None of the respondents proposed a direct solution to chapter provides insight into how states have used race-neutral this problem; however, the solutions mentioned in the next measures to address common challenges. two sections are designed to address financial challenges in general. The survey asked respondents to rate the severity of 19 challenges in terms of their impact on meeting goals for DBE participation in highway contracting. These included chal- Challenge #2: DBE firms' lack of access to capital and/or cash flow issues lenges related to working with DBE firms and non-DBE prime contractors, and challenges related to external factors. Solu- Respondents viewed this as a significant challenge; 87% of tions that states have used to mitigate 11 of these challenges respondents identified this issue as a problem, with 60% were identified, and these 11 challenges are described in this viewing it as a significant or severe problem. One strategy chapter. Details of respondents' numerical ratings of the 11 that some DOTs have used to improve DBEs' access to cap- challenges' impacts on DBE participation accompany these ital is to participate in loan mobilization programs (assisting summaries to provide additional perspective. banks in providing loans to DBEs). Just 28% of states had used this strategy, but of those that had, 62% found it to be Respondents' ratings of the impacts of the other 8 chal- very or extremely effective (rating it a 4 or 5). (For more lenges are shown in Figure 4 (see chapter two), and detailed detail on this strategy see Case Example #2 in chapter five.) ratings of all 19 challenges are available in Appendix B. The full text of all open-ended survey responses is also available Another respondent suggested elimination of up-front cost in Appendix B. retainage on prime contractors and subcontractors to allow firms to use this money for other purposes. FINANCIAL CHALLENGES Challenge #3: DBEs' inability to obtain bonding Survey respondents viewed financial obstacles as the greatest challenge to states in meeting their goals for DBE participa- Most respondents believed this issue was a challenge, with tion. Lack of access to capital and cash flow issues was viewed 74% of respondents identifying it as a problem and 37% view- as the most severe problem, with 60% of those responding rat- ing it as a significant or severe problem. "Bonding is a sig- ing it a significant or severe problem (a 4 or 5 on a five-point nificant barrier," one respondent noted. In addition, all of the scale). External factors such as the economy and rising fuel states that use 100% race-neutral measures identified this issue costs were also a significant concern, with 89% of those as a problem. responding identifying these issues as a problem. Sixty percent of states had used measures to assist DBEs with bonding and financing; of those, 57% found this strategy Challenge #1: Challenges related to external factors, such as economic to be effective, with 25% rating it a 4 or 5 (very or extremely conditions or rising fuel costs effective). In addition, 60% of the states that use entirely race- neutral measures rated this strategy a 4 or 5. A higher percentage of respondents viewed this issue as a problem than any other challenge, with 46% viewing it as a Respondents described two types of bonding assistance--a significant or severe problem. One respondent noted that in bond guarantee program and a bonding fee reimbursement difficult economic times contractors are keeping their work- program. Another respondent mentioned a third strategy that forces employed by performing tasks themselves that they relieves financial pressure on both prime contractors and might once have subcontracted to DBE firms. Another respon- DBEs--elimination of up-front cost retainage.