Last month I wrote about the regulations governing eligibility of Disadvantaged Business Enterprises (DBEs) and mentioned they contradict the edicts on “good faith effort” and they are ambiguous. This month I will discuss counting DBE participation.
Section 26.55 covers counting DBE participation. It is divided into several sections. Subsection (a) is the general section and provides that DOTs are to count only the value of the work actually performed by the DBE toward DBE goals. It further provides that the entire amount of that portion of a construction contract performed by the DBE’s own forces includes the cost of supplies and materials obtained by the DBE, including supplies purchased or equipment leased by the DBE (except supplies and equipment the DBE subcontractor purchases or leases from the prime contractor or its affiliate). Note: it is not, per se, wrong for DBEs to get supplies or equipment from a prime contractor. Instead, the cost must be deducted from what counts toward the DBE goal.
Subsection (b) covers joint ventures with DBEs and permits the amount of work actually done by the DBE to count toward the DBE goal.
Subsection (c) covers DBE contractors and subcontractors. It requires a DBE contractor or subcontractor to perform a commercially useful function. A DBE performs a commercially useful function when it is responsible for execution of the work of the contract and is carrying out its responsibilities by actually performing, managing and supervising the work involved. The DBE also must be responsible, with respect to materials and supplies used on the contract, for negotiating price, determining quality and quantity, ordering the material and installing (where applicable) and paying for the material itself. To determine whether a DBE is performing a commercially useful function, the DOT must evaluate the amount of work subcontracted, industry practices, whether the amount the firm is to be paid under the contract is commensurate with the work it is actually performing and the DBE credit claimed for its performance of the work and other relevant factors.
Subsection (d) describes how to count DBE trucking and makes specific reference to determinations that the DBE trucker is performing a commercially useful function. Subsection (e) covers DBE material suppliers. It provides that 100% of materials supplied by a DBE manufacturer count toward the goal. A manufacturer is defined as a company that operates or maintains a factory or establishment that produces, on the premises, the materials, supplies, articles or equipment required under the contract and of the general character described by the specifications.
It further provides that 60% of the cost of materials or supplies purchased from a DBE regular dealer count toward DBE goals. That section defines regular dealers as an established regular business that engages, as its principal business and under its own name, in the purchase and sale or lease of the products in question. A regular dealer in such bulk items as petroleum products, steel, cement, gravel, stone or asphalt qualifies without owning, operating or maintaining a place of business if the person both owns and operates distribution equipment for the products. Any supplementing of the regular dealers’ own distribution equipment shall be by a long-term lease agreement and not on an ad hoc or contract-by-contract basis.
There was no change in the 1999 revised regulations on counting DBE participation by firms that are decertified. Both prior to 1999, and in the revised regulations, if the DBE was decertified after being listed as a DBE, the prime contractor can count the DBE’s work toward the goal, but the state DOT cannot.
Section 26.87 further explains how to count DBE participation by firms that are decertified. It provides in subsection (j)(2) that the prime contractor may continue to use the firm on the contract and may continue to receive credit toward its DBE goal for the firm’s work, but the DOT may not count. The portion of the ineligible firm’s performance of the contract remaining after you issued the notice of its ineligibility shall not count toward the DOT overall goal, but may count toward the contract goal.
