The Federal Highway Administration (FHWA) recently issued a memorandum to states clarifying its policy on the use of joint checks for payments to subcontractors as part of the disadvantaged business enterprise (DBE) program.
By the use of joint checks, FHWA is referring to a situation where the prime contractor issues a check jointly to a DBE subcontractor and a supplier of material to the DBE. The policy clarification indicates that FHWA will continue to allow this practice if the following conditions are met:
1) The prime contractor acts solely as a guarantor;
2) The DBE must release the check to the supplier;
3) The use of joint checks is a commonly recognized business practice in the industry;
4) The state transportation industry approves the practice before it is issued; and
5) The state transportation agency monitors its use closely to avoid abuse.
AGC wrote and eventually met with FHWA to express concern about these conditions for use. AGC pointed out that the use of joint checks is a time-tested practice widely used in the construction industry. AGC stated that this policy clarification is overly restrictive and could lead to the elimination of this practice. This would be detrimental to the DBE program and could undermine the use of DBE firms.
FHWA responded in writing that it did not agree with AGC’s reading of the policy clarification. It was agreed that further meetings on this and other issues related to the administration of the DBE program would be held.