A recent press release from the U.S. Attorney in New York drives home the point that in 2012, it is still incredibly important to make sure your company is legitimately utilizing Disadvantaged Business Enterprises (DBE) on your work site. The $7.5 million penalty paid by the two general contractors involved in the joint venture also illustrates the continuing seriousness with which the government is treating the use of DBEs.
The joint venture was constructing a tunnel to connect the Long Island Railroad to Grand Central Station. In their bid, the joint venture contractors listed four DBEs as subcontractors and represented that the DBE portion of the contract price was $22 million.
The joint venture submitted monthly reports outlining its progress toward meeting its $22 million DBE participation goal for the project. After more than two years on the project, the joint venture reported that it had paid about $17 million to DBEs. In reality, it had paid less than $5 million for work performed by DBEs. An audit revealed that three of the DBEs were paid fees to act as pass-throughs while the work was actually being performed by non-BDE subcontractors.
Prime contractors constructing transportation projects must subcontract work to qualified DBEs on projects. Prime contractors know that the DBEs on their projects must perform a “commercially useful function,” meaning that the DBE is responsible for execution of the work of the contact and is carrying out its responsibilities by actually performing, managing, and supervising the work involved.” 49 CFR § 26.55(c).
To perform a commercially useful function, “the DBE must also 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.” 49 CFR 26.55(c). In sum, the DBE must perform work with its own workers and have an active role in negotiating price and ordering materials used on the project.
The commercially useful function requirement is not new. It has been a requirement for over 30 years. As evidenced by the substantial penalty in this case, the government takes very seriously a contractor’s certification that DBE’s are performing a commercially useful function on a project.