National Academies Press: OpenBook

Management of Disadvantaged Business Enterprise Issues in Construction Contracting (2005)

Chapter: Chapter Four - Contract Administration

« Previous: Chapter Three - General Administrative Practices
Page 20
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 20
Page 21
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 21
Page 22
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 22
Page 23
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 23
Page 24
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 24
Page 25
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 25
Page 26
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 26
Page 27
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 27
Page 28
Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Management of Disadvantaged Business Enterprise Issues in Construction Contracting. Washington, DC: The National Academies Press. doi: 10.17226/13817.
×
Page 28

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

20 BIDDING PATTERNS The trend in the number of DBEs submitting as prime con- tractors is shown in Figure 5. Contract size and location of the projects were noted as the primary factors influencing the number of DBEs bidding as prime contractors. It should be noted for DBE programs, when as few as one or two DBEs lose their eligibility owing to growth (graduation) or personal net worth limitations, the impact to the availability of DBE firms bidding as prime contractors in that state can be signif- icant. This is particularly noticeable in those STAs where a very limited number of DBE firms have the capacity and qualifications to bid as prime contractors. Experience with bidding STA contracts is important to understanding the competitive prime contract and subcon- tract bidding process. However, as noted earlier, few DBEs have the capability to submit prime contract bids. Figure 6 shows the trend in the ability of firms to submit competitive bids. Supportive services impact was noted for two of the seven STAs reporting an increase in the ability of DBE firms to submit competitive subcontract bids. A slower economy was noted as the factor contributing to the decline in one STA. Otherwise, no specific factors were noted among the STAs reporting a decline in competitive subcontract bids. The questionnaire also sought out studies that support or refine the information collected on past performance reported in Figures 5 and 6. Of the responding STAs, 83% (30 of 36) did not have supportive data or studies on the trends reported for their programs. The Vermont DOT conducted a survey study that focused on the needs of the DBE commu- nity with respect to contracting with the Vermont DOT. It reviewed a number of issues, including the DBE experiences in bidding as a prime contractor or a subcontractor. Califor- nia conducted a survey on training needs for DBEs. Other than disparity studies and the two surveys noted, no studies had been conducted on these trends. DISADVANTAGED BUSINESS ENTERPRISE COMMITMENT SUBMISSIONS Two basic elements must be present for any contract award. First, the prime contractor must be responsive, which means they must meet bid submission time requirements and address all the requirements in the bid forms including bonds, signa- tures, etc. Second, a prime contractor must be a responsible bidder. DBE commitment data or an acceptable good faith effort is a condition of responsiveness when DBE commit- ments are required as part of a bid submission. If the data included do not pass a good faith effort analysis, the con- tractor’s bid can be deemed nonresponsive and may not be considered for award or they may be given an opportunity to modify their DBE commitments depending on the problem with their submission. Other states treat DBE submission requirements more like a condition of responsibility, which means the low bid contractor is given a time period after the bid opening to finalize and submit its DBE commitments for STA reviews similar to their start-up schedule and other pre- construction submissions. The distribution of time allowances is shown in Table 8. The positive aspect of delaying submission of DBE com- mitments is that it allows the prime contractor time to solid- ify their commitments and ensure that they have met contract goals. The negative aspect of allowing prime contractors time to submit their DBE commitments is the opportunity for bid shopping and bid peddling. Submission of DBE data with the bid limits the opportunity for bid shopping to the time period before the bid. Other methods to limit bid shopping and bid peddling were not included in the scope of the study. GOOD FAITH EFFORT Regulation Section 26.53 applies evaluation of contractor good faith effort. A bidder has made good faith efforts if they can either • Document that it has obtained enough DBE participa- tion to meet the goal or • Document that it made adequate good faith efforts to meet the goal even if the effort falls short. The first approach is self-explanatory. The second merely indicates that a prime contractor may not be able to meet a goal and the contract can still be accepted, provided adequate documentation is provided. Appendix A of the regulation pro- vides additional guidance on evaluation of good faith effort, including actions the bidders should undertake to ensure they have made appropriate efforts to meet the contract goal. Typ- ical support documentation for good faith effort includes: • Identification of the contract items to be sublet, • Quotes of all subcontract bids, and CHAPTER FOUR CONTRACT ADMINISTRATION

21 2. A good faith effort is 80% of the average of the per- centages of the DBE commitments submitted by all bidders. 3. Contractors with a history of using DBEs in the previ- ous fiscal years will be assumed to have made a good faith effort to achieve the project goal. 4. Contractors who have not met any of the previous three administrative reconsiderations may request an admin- istrative reconsideration of their good faith efforts. California has a worksheet to evaluate good faith efforts. The contents are provided in Appendix F. MINIMUM LEVEL OF SELF-PERFORMED WORK The subcontracting opportunities for DBE or non-DBE sub- contractors are somewhat defined by either STA or U.S.DOT requirements for a specified percentage of work performed by the prime contractor’s workforce that is commonly termed “self-performed” work. Contracts with federal aid usually require that the prime contractor has the responsibility to per- form at least 30% of the work. This would suggest that 70% of the contract would be available for subcontracting. How- ever, availability also depends a great deal on contract pack- aging. Some STAs specifically elect to package contract work according to a work type, such as excavation, paving, and structures like box culverts, which limits subcontracting oppor- tunity availability. Where the contractor is required to perform 50% of the contract work, the opportunities for subcontracting may be restricted. Table 10 shows the distribution of self- performed work required by the responding STAs. FINANCIAL INCENTIVES FOR DISADVANTAGED BUSINESS ENTERPRISE USE Eleven of the 36 respondents reported that they had some form of incentive for improving DBE use. None were geared toward giving direct financial incentive. Most of the respondents, like • Copies of solicitations and advertisements used to gain DBE participation. Table 9 summarizes good faith effort submissions and acceptances reported in the study survey for 2002 data. The time required to perform a good faith effort will in most cases delay a decision on the low bidder award and, if the docu- mentation and analysis is difficult, the process could delay processing the contract for the actual award. Of the good faith effort submissions reported in 2002, 640 (77%) were accepted. On average, the STAs allow 18 days for determi- nation of good faith effort, with the range from 3 to 45 days. IOWA EXPEDITED GOOD FAITH EFFORT PROCESS Iowa has adopted a different viewpoint to expedite the good faith effort determination. A brief outline of the Iowa deci- sion process is provided here, with details of the 80% good faith effort and other elements provided in Appendix F. If a goal has been established for a contract, the Iowa STA will award the contract to the lowest bidder making good faith efforts to meet the contract goal. The following is a synopsis of the Iowa process: 1. Bidders with 80% of the established goal will be assumed to have made a good faith effort. Increased 28% Same 50% Declined 8% No Response 14% Increased 19% Same 56% Declined 8% No Response 17% FIGURE 5 Percentage of DBE firms submitting bids as prime contractors in 2002. FIGURE 6 Percentage of DBE firms submitting competitive subcontract bids in 2002. Allowance for DBE Submission No. of STAs Responsive Bid Requirement (0 days) 11 Responsible Bid 1-day submission 1 2-day submission 1 3-day submission 4 4-day submission 1 5-day submission 2 7-day submission 4 10-day submission 4 14-day submission 2 15-day submission 2 Reasonable Amount of Time 1 Responsibility with No Time Indicated 2 No Response to Question 1 TABLE 8 DAYS ALLOWED TO SUBMIT DBE COMMITMENTS

22 Iowa, focused on indirect assistance, where past track records of using DBEs are considered in evaluating a good faith effort. Two STAs reported providing additional credit for the spe- cific use of DBEs. One gave double credit, in the letting, for DBEs used in bridge building, and the other gave a 2% bonus (not to exceed $200,000) for using first-time DBEs. One STA reported reducing the payment retainage percentages for higher use. Three reported that the financial incentive was to keep participation levels above the state goal to ensure that they did not need to return to specific contract goals. The remain- ing 24 respondents did not consider any type of incentive for improved DBE participation, and 1 did not provide a response. PERFORMANCE BONDS Thirty-one of 36 survey respondents indicated that they required performance bonds on all projects. Two indicated that they did not require bonds on all projects, and three did not provide a response in this section. In some states, there is the option to waive bonds on smaller projects. One state clarified their response by stating that the STA had the option to waive bonds on contracts under $80,000. The questionnaire for this study did not attempt to define the bond coverage limits or requirements. Bonding for small firms, start-up firms specifi- cally, is hard to obtain. Bonding assistance programs were put into place to aid DBE and small non-DBE firms in developing their experience and financial reports to qualify for bonding. State Written GFE Policy? GFE Submissions 2002 GFE Accepted 2002 Time Allowance To Determine GFE Alabama Yes NA NA No Alaska Yes 23 20 5 days Arizona No 0 0 No Arkansas Yes 2 0 Yes, ASAP California Yes 250 133 NR Colorado Yes 19 19 30 days Connecticut Yes 4 4 14 days Georgia Yes 0 0 Yes Hawaii No 1 NR No Idaho No 1 0 15 days Illinois Yes 34 34 18 days Iowa Yes All All except 3 3 days Kansas Yes 7 5 No Kentucky Yes 1 1 10 days Maine Yes NR NR NR Massachusetts Yes 0 NA No Michigan Yes 35 35 20 days Minnesota No NR NR NR Missouri Yes 10 6 3 days Nevada Yes 0 0 No New Hampshire Yes 0 0 No New Jersey Yes 0 0 No New Mexico Yes 0 0 No New York Yes 30 25 25–40 days North Carolina Yes Unknown 95% estimated Yes North Dakota Yes 27 23 30 days Ohio Yes 8 8 10 days Oklahoma Yes 30 30 Yes, varies Pennsylvania Yes 3 3 7 days South Dakota Yes 22 21 30 days Texas Yes 5 5 No Vermont Yes 0 NA No Washington Yes 1 1 45 days West Virginia Yes 1 NR NR Wisconsin Yes 126 118 10 days Wyoming Yes 0 0 0 Notes: GFE = good faith effort; NA = not available; ASAP = as soon as possible; NR = no response. TABLE 9 GFE ANALYSIS 2002 Minimum Level of Self-Performed Work No. of Respondents 50% or Greater 15 40% or More 5 30% or More 10 Variable: 30% to 50% Depending on the Type of Contract (i.e., state-only funds, 50%; federal funds, 30%) 3 No Response 3 TABLE 10 DISTRIBUTION OF SELF-PERFORMED WORK REQUESTED BY STAs

23 • An applicant must have a transportation-related contract. • An applicant must have current certification as a DBE by any agency applying U.S.DOT certification guide- lines (49 CFR 26). • It is recommended that a business have at least a 3-year past performance history before applying to the program. The STLP is administered by the OSDBU through coop- erative agreements with six regional banks. Loan documen- tation and financing transactions are performed by the STLP bank, which offers the line of credit. The maximum line of credit is $750,000. Money borrowed under the lines of credit is to meet the short-term costs of performing the contract(s) being financed. Owing to the STLP structure and the short- term nature of borrowings, funds are not available for • Contract mobilization, • Equipment purchases or other long-term uses, • Refinancing of existing debt, • Payment of noncurrent taxes, and • Distributions or other payments to stockholders. Funds may be borrowed against each invoice of the con- tract(s) being financed. Repayment of the short-term loan occurs when the project owner or prime contractor pays the subcontractor’s invoice. Payments are made jointly to the bor- rower and to the STLP bank. Payments are sent to the bank, which repays the amount borrowed against the invoice and transmits the balance to the borrower. The line of credit nor- mally covers a 1-year period and one or more renewals may be requested, with the maximum length of time in the program being 5 years. Contact information and other details can be obtained at the OSDBU website, http://osdbuweb.dot.gov/. New York has alternate short-term working capital loan programs available to DBEs. The following description is from the STA website: (1) A joint program of the New York State Department of Transportation [NYSDOT] and the Albany–Colonie Regional Chamber of Commerce. Goal: to provide access to capital for women and minority- owned businesses in Albany, Schenectady and Rensselaer Coun- ties that have secured NYSDOT contracts but are unable to obtain traditional working capital financing. Provides working capital loans of up to $25,000 to qualified business owners. Funds can be used to assist in the timely dis- bursement of employee wages and the purchase of supplies, allowing companies to complete current contracts and bid on more competitive jobs in the future. (2) Transportation Loan Program: This program is administered by NYSDOT and the Empire State Development Corporation. It offers financial assistance in the form of working capital loans to small business and certified minority-owned and woman-owned business enterprises participating on NYSDOT contracts. DISADVANTAGED BUSINESS ENTERPRISE BONDING ASSISTANCE The U.S.DOT OSDBU administers a bonding assistance pro- gram through a number of selected surety bond providers. Elements of the U.S.DOT OSDBU bonding assistance pro- gram are described as follows (http://osdbuweb.dot.gov.): • The bonding program offers certified minority, women- owned, and DBEs an opportunity to obtain bid, pay- ment, and performance bonds for transportation-related projects. • The program provides an 80% guarantee against losses on contracts of up to $1,000,000 and approved surety companies perform bond approval and issuance. • Funding for the guarantee is provided by the U.S.DOT OSDBU and is administered by local bond agents that are located in designated areas of the country. • Bond applications may be obtained from designated local bond agents or from the OSDBU. Eight STAs indicated that they had an active DBE bonding assistance program. Of that group, only four affirmed that the bonding assistance program has reduced bonding difficulties. Eight STAs indicated that they had supportive services agree- ments or business development groups that aided DBE and small non-DBE firms to prepare for bonding submission. SHORT-TERM LOAN PROGRAM Undercapitalization has long been a problem for small busi- nesses. As shown in Figure 7, most STAs do not support their own short-term loan programs (STLPs) for DBE or non-DBE firms. The U.S.DOT OSDBU also developed a short-term lend- ing program to ease the cash flow problems that most small contractors experience. However, this is not a program for new contractors. The basic qualification requirements are as follows: No 88% Yes 9% No Response 3% FIGURE 7 State-administered short- term loans.

A firm can qualify for up to 50% of the amount of the contract(s) not to exceed $500,000. For more information, contact OEODC, Support Services at: http://www.dot.state.ny.us/oeodc/support.html#Loan. PROMPT PAYMENT Prompt payment and retainage were two major changes that affected subcontracting practices. In the past, prime contrac- tors could withhold payment to subcontractors long after work was substantially completed. All firms working as sub- contractors were affected by the reduced cash flow result- ing from slow payment. Section 26.29 of the regulation describes the requirements for prompt payment as follows: (a) You must establish, as part of your DBE program, a contract clause to require prime contractors to pay subcontractors for satisfactory performance of their contracts no later than a specific number of days from receipt of each payment you make to the prime contractor. This clause must also require the prompt return of retainage payments from the prime con- tractor to the subcontractor within a specific number of days after the subcontractor’s work is satisfactorily completed. (1) This clause may provide for appropriate penalties for fail- ure to comply, the terms and conditions of which you set. (2) This clause may also provide that any delay or post- ponement of payment among the parties may take place only for good cause, with your prior written approval. (b) You may also establish, as part of your DBE program, any of the following additional mechanisms to ensure prompt payment: (1) A contract clause that requires prime contractors to include in their subcontracts language providing that prime contractors and subcontractors will use appropri- ate alternative dispute resolution mechanisms to resolve payment disputes. You may specify the nature of such mechanisms. (2) A contract clause providing that the prime contractor will not be reimbursed for work performed by subcon- tractors unless and until the prime contractor ensures that the subcontractors are promptly paid for the work they have performed. (3) Other mechanisms, consistent with this part and applica- ble state and local law, to ensure that DBEs and other contractors are fully and promptly paid. 24 Overall there was little agreement about how many days constitute prompt payment among the responding agencies. Figure 8 shows the distribution of current prompt payment provisions. Seven respondents did not provide information to this question and stated that their regulations were not cur- rently in compliance with the requirements. Sanctions and penalties for prime contractors failing to comply with prompt pay requirements identified by the STAs included: • Withholding future prime contractor payments (9), • Interest of 1.5% to 2% per month on the amount owed or fixed-fee charges (liquidated damages) of $50 per day or some other amount (7), • Suspension of bidding privileges (5), and • In repeat or chronic cases the contractor may be sus- pended from bidding or revocation of prequalification (3). The primary approach to monitoring subcontractors’ pay- ments was normal monthly progress payments either in the form of reports filed or software printouts. The primary enforcement mechanism is to conduct an investigation when a complaint is filed. RELEASE OF RETAINAGE Retainage is one mechanism to ensure that contractors and subcontractors complete their work. Retainage is money held back from payments made to the prime contractor or sub- contractor. Traditionally, prime contractors withheld payment of retainage on subcontracts until they received final pay- ment. Retainage options for STAs were described as follow (www.azagc.org/sept03): 1. Eliminate retainage entirely, prohibiting prime contrac- tors from withholding retainage from subcontractors. 2. Stop prime contractor withholding, but allow prime contractors to withhold retainage on subcontractors. 5 2 11 7 11 0 2 4 6 8 10 12 7 days 10 days 14 days 15 days 20 days 30 days Specified Prompt Payment Time N um be r o f A ge nc ie s FIGURE 8 Prompt payment time specified.

25 Prime contractors must return retainage within 30 days of satisfactory completion. 3. Withhold on the prime contractor, but conduct incre- mental acceptance inspections (“mini-finals”). If work is found to be satisfactory, the retainage for the prime contractor is returned and the prime contractor would be expected to return retainage to the subcontractor within 30 days. Satisfactory completion is when all tasks called for in the subcontract have been accomplished and documented as required by the state. Without an intermediate acceptance process, retainage can be held for the duration of the project. Incremental accep- tance allows for acceptance of that portion of the work sub- contracted and completed to be paid in full to the prime con- tractor. Before the 1999 regulation change, 12 of the 36 STAs had a prompt return of retainage to subcontractors as part of their prompt payment requirements. After the legislation, 32 STAs indicated that they require prompt payment of retain- age to subcontractors. Fourteen STAs, based on this investiga- tion, have a “zero” retainage policy for both prime contractors and for subcontractors. The responses imply, therefore, that 18 STAs withhold retainage on their prime contractors, but require prompt payment to subcontractors. Only four respon- dents specifically indicated that the prime contractors could withhold retainage on their subcontractors. STA prompt pay- ment provisions reviewed in detail indicate that when incre- mental acceptance included all the work of the subcontractor, the prime contractor would need to pay the retained amounts to the subcontractor in the next payment. If there was work still in dispute, the contractor could retain a fair value of the work disputed until the dispute was resolved and then they had to comply with prompt payment time provisions. Although a policy of zero retainage for prime contractors and subcontractors is the easiest to administer, there are some drawbacks to zero retainage and early release of retainage. The following contractual issues were noted in regard to zero retainage (numbers represent the number of times the issue was identified by the STAs in the questionnaire): • Resulted in overpayment to contractor (7), • Limited ability to recall subcontractors (7), and • Limited ability to obtain final contract documentation from prime contractor (4). CONTRACT COMPLIANCE REVIEWS There was no consistency among the responses to provide a general process approach to the issue of contract compliance reviews. Depending on the STA administrative organization, construction field personnel, EEO representatives, central office staff, and compliance specialists can be involved in conducting field audits. New York has a detailed procedural guide for conducting contractor compliance reviews (“New York State . . .” 2002). The STA uses compliance specialists to perform the compliance review. For the DBE program portion of contract compliance the following contractor doc- umentation is used for preliminary review: • Copy of the currently approved Schedule of DBE Uti- lization (AAP 19), • List of all DBE firms the contractor contacted as possi- ble subcontractors, • AAPHC 89s (Part 1—D/M/WBE Utilization Work- sheet; Part 2—Approval to Subcontract) for all cur- rently approved DBEs participating in this contract, • List of all non-DBE vendors and material suppliers, • Copies of invoices for DBE subcontractor materials, and • Documentation of all back charges to DBE sub- contractors. The second phase was the actual field visit, where inter- views and analysis of project-level documentation would be conducted. The two sets of data are compared as a method of cross-checking for contract compliance. Other questions on the New York DBE Compliance Data Report Addendum are indicators of the compliance analysis considerations. 1. Have all DBEs maintained a workforce and supervi- sion separate and independent from that of the con- tractor, other subcontractors, or their affiliates? 2. Have all DBEs performed a commercially useful function? 3. Have DBE subcontractors obtained more than 50% of the equipment used to complete their work from the contractor, other subcontractors, or their affiliates? 4. Have DBE subcontractors documented the cost of any equipment obtained from the contractor, other sub- contractors, or their affiliates? 5. Were the materials used by the DBE subcontractors ordered and paid for by the DBEs? 6. Have DBEs performing off-site trucking provided at least 20% of the equipment and manpower required? 7. Have DBEs performing off-site trucking obtained any equipment or manpower from the contractor, other sub- contractors, or their affiliates? COMMERCIALLY USEFUL FUNCTION Section 26.55 (c) describes how actual DBE participation is counted toward contract goals and forms the basis for defin- ing commercially useful function (CUF). (c) Count expenditures to a DBE contractor toward DBE goals only if the DBE is performing a commercially useful func- tion on that contract. (1) 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 per- forming, managing, and supervising the work involved. 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, deter- mining quality and quantity, ordering the material, and

installing (where applicable) and paying for the material itself. To determine whether a DBE is performing a com- mercially useful function, you must evaluate the amount of work subcontracted, industry practices, whether the amount the firm is to be paid under the contract is com- mensurate with the work it is actually performing, and the DBE credit claimed for its performance of the work, and other relevant factors. (2) A DBE does not perform a commercially useful function if its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE partic- ipation. In determining whether a DBE is such an extra participant, you must examine similar transactions, par- ticularly those in which DBEs do not participate. (3) If a DBE does not perform or exercise responsibility for at least 30% of the total cost of its contract with its own work force, or the DBE subcontracts a greater portion of the work of a contract than would be expected on the basis of normal industry practice for the type of work involved, you must presume that it is not performing a commercially useful function. (4) When a DBE is presumed not to be performing a com- mercially useful function as provided in paragraph (c)(3) of this section, the DBE may present evidence to rebut this presumption. You may determine that the firm is performing a commercially useful function given the type of work involved and normal industry practices. (5) Your decisions on commercially useful function matters are subject to review by the concerned operating admin- istration, but are not administratively appealable to DOT. The STAs that responded to the study questionnaire follow these guidelines very closely. Elements that are checked for CUF in addition to those specified in the regulation include • Equipment appropriate to the work contracted (owned and leased), • Qualifications of the subcontractor, and • Observations of the work in the field. If it is determined that no CUF is performed some sanc- tions or penalties may be appropriate. The penalties listed in the survey response include • Prime contractor suspended from future bidding, • DBE’s certification reviewed, • Monetary penalties – Dollar-for-dollar fine where contract amount for the DBE is paid to the STA – Suspend payment for work involved in non-CUF – Withhold payments • Not counted toward contract goal, and • Have violator secure participation over and above goal on future contracts. TERMINATION OF NONPERFORMING DISADVANTAGED BUSINESS ENTERPRISE SUBCONTRACTOR With most subcontract agreements the prime contractor has an ability to terminate the subcontractor for nonperformance of the contract requirements. Subcontractors can, in most 26 contracts, be terminated for convenience, which would allow the prime contractor to replace the subcontractor or perform the work with its own forces. Termination for convenience can be prohibited in the case of DBE subcontractors. In Illi- nois, for example, contract compliance requirements, for the prime contractor, states that “the contractor shall not termi- nate for convenience a DBE listed in the Utilization Plan and then perform the work of the terminated DBE . . . without first obtaining written consent of the Bureau of Small Busi- ness Enterprises to amend the Utilization Plan.” The prime contractor will need to document the issues related to non- performance and seek state STA approval before termina- tion. In addition, the prime contractor will need to replace the terminated contract dollar volume with an equivalent DBE subcontract dollar volume or submit evidence of a good faith effort. California is more specific in defining the use of other forces or sources of materials for DBEs listed in the contract. California’s Construction Manual (2001) requires a written request for substitution or removal of a DBE and the request must match an authorized situation specified in the contract. The following list describes situations where a prime con- tractor can request a change from a listed DBE subcontractor: A. The listed DBE, after having had a reasonable opportunity to do so, fails or refuses to execute a written contract, when such written contract, based upon the general terms, condi- tions, plans, and specifications for the project, or on terms of such subcontractor’s or supplier’s written bid, is presented by the Contractor. B. The listed DBE becomes bankrupt or insolvent. C. The listed DBE fails or refuses to perform the subcontract or furnish the listed materials. D. The Contractor stipulated that a bond was a condition of exe- cuting a subcontract and the listed DBE subcontractor fails or refuses to meet the bond requirements of the Contractor. E. The work performed by the listed subcontractor is substan- tially unsatisfactory and is not in substantial conformance with the plans and specifications, or the subcontractor is sub- stantially delaying or disrupting the progress of the work. F. It would be in the best interest of the State. TRACKING INFORMATION The administrative requirements for monitoring the perfor- mance of the DBE program participants require tracking spe- cific types of information. Within this section both monitor- ing and enforcement requirements are required. Information tracking in this section is focused on data collected as part of the monitoring function. Enforcement elements are covered elsewhere. From the regulation, the information must include the following (49 CFR 26.37): (a) You must implement appropriate mechanisms to ensure compliance with the part’s requirements by all program par- ticipants (e.g., applying legal and contract remedies avail- able under Federal, state and local law). You must set forth these mechanisms in your DBE program. (b) Your DBE program must also include a monitoring and enforcement mechanism to verify that the work committed

27 to DBEs at contract award is actually performed by the DBEs. This mechanism must provide for a running tally of actual DBE attainments (e.g., payments actually made to DBE firms) and include a provision ensuring that DBE par- ticipation is credited toward overall or contract goals only when payments are actually made to DBE firms. Table 11 is a summary of the STA data tracking for bid sub- missions and awards. The questionnaire did not include a responsive section to determine why all STAs were not tracking the required data at this time. However, five volunteered that they were still in the process of trying to implement a mechanism to track these data or that the information was not readily available. The responses suggest that there is overall compliance with track- ing the prime contractor dollar commitments (33 of 36) and subcontractor commitments (34 of 36). FRAUD INVESTIGATIONS Situations where fraud may become an issue can be brought to the attention of the STA from various sources. Complaints from individuals or firms can be used to initiate the investiga- tion. New Mexico requires all complaints to be submitted in writing with specific reasons why the firm should be exam- ined. In some situations, the STA is notified that the U.S.DOT is conducting a fraud investigation depending on the reason for the complaint. Generally, fraud investigations can be gen- erated by complaints from nearly any credible source. For the 36 STAs responding to the survey, 26 state-level investiga- tions for fraud were reported for 2002. The U.S.DOT Office of Inspector General (OIG) is involved in a larger share of the fraud investigations where there are federal contracts and grants involved. Fraud involving the DBE program for minority and women con- tractors who are used as “false-front” companies is an area with serious enforcement and compliance problems that appears to be nationwide in scope and requires more attention (“Disadvan- taged Business Enterprise Program,” Nov. 18, 2003). As of November 1, 2003, OIG had 40 ongoing DBE fraud investigations in 19 states. The summary of the activity is in Table 12. The types of fraud commonly encountered in DBE inves- tigations include • Individuals and companies applying for DBE certifica- tion that submit misleading or false information that is not easily detectable. • Inconsistent interpretation of the regulations by the cer- tifying entity and a lack of uniformity in the certification process among agencies receiving DOT funds, enabling some companies and individuals who do not meet DBE requirements to obtain certification. • DBEs that were legitimately certified at one time that may fail to meet eligibility requirements in subsequent years and are not decertified in an expeditious manner. The most common DBE schemes reported in the docu- ment were (OIG): • Front or sham companies—established to illegally take advantage of the DBE program by falsely representing ownership and control. • Pass-through or conduit companies—prime contractor indicates that the DBE performs the work they were hired to do when in actuality the DBE did not perform the work • False eligibility—when DBEs misrepresent their profits or other criteria to qualify them as a DBE. Tracking Information No. of STAs Tracking Data* Track Number of Bid Submissions for all DBE Firms Quoting as Prime or Subcontractor 17 Tracking DBE Prime Bid Dollar Volume 24 Tracking DBE Prime Award Dollars 33 Tracking DBE Subcontract Bids for all Prime Bidders (DBE and Non-DBE) 9 Tracking DBE Subcontract Dollar Awards 34 *Multiple responses possible from each of the 36 responding STAs. Contract and Grant Year Fraud Cases Opened DBE Cases DBE Cases % Total Indictments Convictions FY 99 47 3 6% 5 1 FY 00 39 7 18% 9 4 FY 01 68 12 18% 10 9 FY 02 57 14 25% 10 11 FY 03 74 22 29% 9 5 277 56 20% 40 29 Note: From web document, Federal Office of Inspector General (OIG) Nov. 18, 2003, Backgrounder. TABLE 11 BID DATA TRACKING TABLE 12 U.S. DOT OFFICE OF INSPECTOR GENERAL DBE FRAUD INVESTIGATIONS

PROGRAM WAIVERS In collecting background information for the study, data on program waivers was requested to ensure that methods and techniques were clearly understood and reported. STAs are permitted in the regulation to request waivers if they wish to diverge from the regulation requirements. Five STAs have submitted requests for program waivers. Three STAs reported that they were informed that no waivers would be accepted and either withdrew or did not file waivers. One STA requested waivers in its certification procedures, but was denied. No 28 waivers have been requested in the scope of subjects encom- passed by this study. At the time the study was prepared the following waivers had been requested: • A 90-day waiver on goal establishment submission, • A request to use state retainage requirements in lieu of 49 CFR 26.29 (b), • A request to revise the trucking crediting, and • A waiver on prompt payment requirement on retainage (denied).

Next: Chapter Five - Conclusions »
Management of Disadvantaged Business Enterprise Issues in Construction Contracting Get This Book
×
MyNAP members save 10% online.
Login or Register to save!
Download Free PDF

TRB National Cooperative Highway Research Program (NCHRP) Synthesis 343: Management of Disadvantaged Business Enterprise Issues in Construction Contracting examines state transportation agencies’ (STA's) various approaches to implementation of DBE regulations relating to bidder’s lists; prompt payment; return of retainage; actual achievements, including accounting and reporting procedures; good faith efforts; and compliance, including substitutions, fraud, and commercially useful functions. The report also includes information on construction and construction management contracts, design–build projects, master contracts (indefinite delivery/indefinite quantity, services on demand, and task ordering), pass-through to local agencies, and STA performance measures.

  1. ×

    Welcome to OpenBook!

    You're looking at OpenBook, NAP.edu's online reading room since 1999. Based on feedback from you, our users, we've made some improvements that make it easier than ever to read thousands of publications on our website.

    Do you want to take a quick tour of the OpenBook's features?

    No Thanks Take a Tour »
  2. ×

    Show this book's table of contents, where you can jump to any chapter by name.

    « Back Next »
  3. ×

    ...or use these buttons to go back to the previous chapter or skip to the next one.

    « Back Next »
  4. ×

    Jump up to the previous page or down to the next one. Also, you can type in a page number and press Enter to go directly to that page in the book.

    « Back Next »
  5. ×

    To search the entire text of this book, type in your search term here and press Enter.

    « Back Next »
  6. ×

    Share a link to this book page on your preferred social network or via email.

    « Back Next »
  7. ×

    View our suggested citation for this chapter.

    « Back Next »
  8. ×

    Ready to take your reading offline? Click here to buy this book in print or download it as a free PDF, if available.

    « Back Next »
Stay Connected!