Government contracting: monitoring DBE participation in federally funded construction projects

For government entities and the construction companies that do business with them, the question often comes up, “What are the prime responsibilities of a recipient of Federal funding (Recipient), in monitoring the performance of General Contractors with respect to Disadvantaged Business Enterprise (DBE) participation and goals?

Design Build Procurements Pursuant to Mass. Gen. Laws c. 149A
In a Design Build contracting situation, a Recipient of Federal funds enters into a master contract with a general contractor (GC), who in turn enters into subsequent subcontracts for the work of the project. It is up to the Recipient to monitor the GC and its subcontracts to ensure that established DBE goals are met or, if they are not, determine whether the GC has exercised good faith efforts to attain those goals. The project’s GC establishes contract goals, as appropriate, for the subcontracts it enters into. Recipients must maintain oversight of the master contractor’s activities to ensure that they are conducted consistent with Federal regulations (and state regulations, if applicable) with respect to DBEs:

• Recipient must require that a prime contractor not terminate for convenience a DBE subcontractor, or an approved substitute DBE firm, and then perform the work of the terminated subcontract with its own forces or those of an affiliate, without Recipient’s prior written consent.
• When a DBE subcontractor is terminated, or fails to complete its work on the contract for any reason, Recipient must require the prime contractor to make good faith efforts to find another DBE subcontractor to substitute for the original DBE. These good faith efforts shall be directed at finding another DBE to perform at least the same amount of work under the contract as the DBE that was terminated, to the extent needed to meet the contract goal Recipient established for the procurement.
• Recipient must include in each prime contract a provision for appropriate administrative remedies that Recipient will invoke if the prime contractor fails to comply with the requirements of this section.
• Recipient must apply the requirements of 49 CFR 26 to DBE bidders for prime contracts. In determining whether a DBE bidder for a prime contract has met a contract goal, Recipient count the work the DBE has committed to performing with its own forces as well as the work that it has committed to be performed by DBE subcontractors and DBE suppliers.
• As part of its monitoring activities, Recipient should monitor reports filed by the General Contractor with respect to DBEs. Such reports include DBE Goals and Wage Rates report similar to the attached Exhibit A as well as DBE participation reports and Commercially Useful Function reports.

It is not necessary, in a Design Build procurement, to require that the GC enumerate exactly how a DBE goal will be met prior to signing the master contract for the project. The selected GC should have given a description of how the goal will be met in its response to the RFP and that description should have been vetted by the Recipient. The Recipient should implement monthly and quarterly monitoring of DBE participation (including review of reports required by relevant Federal agency) along with penalties for failure to comply, absent good faith efforts to achieve goals.

DBE Goals–General Contractor Selection
The winning contractor must either (1) document that it has obtained enough DBE participation to meet the goal or (2) demonstrate that it made “adequate” good faith efforts to meet the goal even though DBE participation fell short of the goal.

Requests for Proposals (RFPs) must require the following:
• Award of the contract will be conditioned on meeting DBE requirements of 49 CFR 26;

• All bidders must submit the following information:

1) The names and addresses of DBE firms that will participate in the contract;
2) A description of the work that each DBE will perform;
3) The dollar amount of the participation of each DBE firm participating;
4) Written documentation of the bidder’s commitment to use a DBE subcontractor whose participation it submits to meet a contract goal;
5) Written confirmation from the DBE that it is participating in the contract as provided in the prime contractor’s commitment; and 6) If the contract goal is not met, evidence of good faith efforts (see Appendix A of 49 CFR 26 for guidelines);

• At the Recipient’s discretion, the bidder must present the DBE information as follows: (1) under sealed bid procedures, as a matter of responsiveness, or with initial proposals, under contract negotiation procedures; or (2) at any time before Recipient commits to the performance of the contract by the bidder. The rule is different for Design Build or “turn-key” projects. See beginning paragraph above.

• The recipient must make sure all information is complete and accurate and adequately documents the bidder’s good faith efforts before committing to the performance of the contract by the bidder.
• If the recipient determines that the apparent successful bidder has failed to meet the requirements of paragraph (a) of this section, Recipient must, before awarding the contract, provide the bidder an opportunity for administrative reconsideration.

Administrative Reconsideration
1) As part of the administrative reconsideration, the bidder must have the opportunity to provide written documentation or argument concerning the issue of whether it met the goal or made adequate good faith efforts to do so.
2) Recipient’s decision on reconsideration must be made by an official who did not take part in the original determination that the bidder failed to meet the goal or make adequate good faith efforts to do so.
3) The bidder must have the opportunity to meet in person with Recipient’s reconsideration official to discuss the issue of whether it met the goal or made adequate good faith efforts to do so.
4) Recipient must send the bidder a written decision on reconsideration, explaining the basis for finding that the bidder did or did not meet the goal or make adequate good faith efforts to do so.
5) The result of the reconsideration process usually is not administratively appealable to the regulating Federal agency.

If Recipients fail to comply with the requirements, they may be subject to formal enforcement action under section 26.103 or section 26.105 or appropriate program sanctions by the relevant government agency (e.g., FTA in transit projects) such as the suspension or termination of Federal funds or refusal to approve projects, grants or contracts until deficiencies are remedied. Program sanctions may include any actions permitted under 49 U.S.C. c. 53 or applicable agency requirements.

References: 49 CFR 26.37, 26.53, 26.55, 26.101, 26.103, 26.109

Exhibit A

DBE/EEO Goals & Wage Rates:
Contract goal for DBEs: ____ % Current DBE % ____ Projected DBE % _____
(If applicable, attach listing of DBE Firms)

• Has any DBE work started? YES NO NA If “NO”, when is the DBE work anticipated to begin? ______________________

• Are the DBEs providing a commercially useful function? Yes No NA Is EIC familiar w/ DBEs from previous jobs? YES NO NA

• Is a Bulletin Board in‐place w/ applicable info such as “EEO is The Law”, Wage rates, False Statements, etc.? YES–NO–NA

• DBE Utilization Goal: _______ % Current % ______ Comments: ________
• [proportion of MBEs and WBEs]

• If goals aren’t being met, is/has the Contractor demonstrated a “good faith effort”? YES NO NA

• Is the “good faith effort” documented? YES NO NA (if YES, attach copy of documentation)

• Is the employment utilization report available for review? YES NO NA (Attach copy of latest report)

• Are the Davis‐Bacon Act (23 U.S.C. 113) minimum wage rates being met? YES NO NA

Please note that this article does not constitute legal advice. If you have a question about this or any other business law or employment law matter, call or email The Brown Law Firm, LLC.

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