Category:146 Disadvantaged Business Enterprise (DBE)

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DBE trucking companies are commonly used for participation on projects

The Disadvantaged Business Enterprise (DBE) Program is a federally mandated program administered by MoDOT’s External Civil Rights Division. The intent of the program is to provide opportunities to small businesses owned and operated by disadvantaged individuals to participate in the economic benefits of highway construction.

MoDOT road and bridge projects are evaluated for DBE opportunities. This means individual projects are evaluated for items of work that could be performed by these small businesses more easily if contract provisions were included to help facilitate subcontracting. Applicable projects are then provided a DBE goal provision, which is included in the bid proposal. Bidding contractors evaluate the DBE goal provision, along with all the other proposed provisions, and submit their bid accordingly.

Federal funding is a significant source of the overall funding dedicated to each state highway construction project. The incorporation of a DBE goal, where applicable, is a requirement of federal funding participation. There are many other contractual and project provisions incorporated in the contract to qualify for the use of federal funding. Federal funding is provided by the federal motor fuel taxes paid at the pump in Missouri to the federal government’s Highway Trust Fund. These funds are then allocated back to Missouri with oversight from the Federal Highway Administration (FHWA). Missouri cities and counties (Local Public Agencies, or LPAs) also receive these federal fuel tax dollars for their road and bridge improvements and must include the same federal provisions, like the DBE goals, in their projects. MoDOT has oversight responsibilities over the LPA Program through its Stewardship Agreement with the Federal Highway Administration (FHWA). MoDOT evaluates the bid responsiveness of local road and bridge improvement projects funded with federal funds. The majority of MoDOT and LPA projects are funded with a combination of 80% federal and 20% state/local dollars. Federal sanctions can be imposed for the incorrect application of the federal contracting provisions.

146.1 Project Bid Proposals that Include DBE Goal Provisions

Each contactor’s bid submittal, which includes a DBE goal, is evaluated for the effort demonstrated to meet the established DBE goal. The DBE goal is a “goal” and not an absolute requirement. It is the contractor’s responsibility to determine, and submit with the bid, the level of commitment applied towards the goal requested. In the majority of project bid proposals, the bid contractors meet or exceed the DBE goal requested in the bid documents. The lowest bid contractor, who meets or exceeds the DBE goal and has no other bid responsiveness issues or excessive bids, will generally be recommended for bid award and offered a contract. The lowest bid contractor presenting a DBE commitment level below the goal requested, along with no other bid responsiveness issues or irregularities, will be required to establish that the DBE commitment submitted is a “good faith effort” (GFE). A good faith effort is defined as "the contractor following the guidelines in the federal regulations and all other reasonable efforts to try to meet the goal, but was unable to do so.” MoDOT will evaluate the quantity, quality, and intensity of different efforts made by the bidder in its DBE goal submitted with the bid. MoDOT will determine if the bid is responsive in relation to the DBE commitment provision. The determination of “good faith effort” is primarily determined by MoDOT’s External Civil Rights Division.

146.1.1 Administrative Hearing Evaluation Process

The federal provisions have provided for Administrative Reconsideration to further evaluate the DBE commitment level for bid submittals that are unable to be determined to have met the goal or a portion of the goal with a “good faith effort” (GFE) determination. The Administrative Reconsideration process further evaluates the level of commitment submitted and ultimately determines whether a “good faith effort” was performed or not. Each state Department of Transportation determines their own process. MoDOT uses a DBE Hearing Committee to perform the Administrative Reconsideration.

The DBE Administrative Reconsideration Process (Hearing Committee) is allowed under 49 CFR Part 26. MoDOT’s DBE Hearing Committee evaluates MoDOT and LPA projects for bid responsiveness related to the DBE goal commitments submitted only for those DBE bid commitments MoDOT’s External Civil Rights Division did not approve or provide a good faith effort approval. For MoDOT advertised projects, the bid responsiveness Hearing Committee consists of the Assistant Chief Engineer – Chair, and two other MoDOT staff. For LPA advertised projects, the Hearing Committee consists of the Assistant State Construction and Materials Engineer as chair and two other MoDOT staff. The committee members will have knowledge of the DBE regulations. The committee members will not have had any role in setting the DBE goal requested or evaluating the DBE level of commitment made by each contactor with its bid submittal. The sole purpose of the Hearing Committee is to evaluate the DBE level of commitment by the lowest bidder and determine whether a good faith effort has been performed. The Hearing Committee will either affirm or overturn the decision made by MoDOT’s External Civil Rights Division.

146.1.2 DBE Administrative Hearing

Once MoDOT’s ECR Division determines a contractor did not establish a GFE with their bid, the contractor is offered the opportunity to participate in a DBE Administrative Hearing. At the hearing, the Committee evaluates the DBE bid submittal and any other documents or materials the bidder believes the Hearing Committee should consider before making the final determination on the responsiveness of their bid, related to the DBE level of commitment only. The contractor may appeal any negative determination established by MoDOT’s ECR Division and request a hearing. The hearing will be scheduled either by phone or in-person. All hearings will be recorded and a legal transcript will be prepared. The Hearing Committee will hear the sworn testimonies of both the MoDOT staff who evaluated the contractor’s DBE submittal and the contractor’s staff who prepared their bid. The contractor may be accompanied by their counsel. If the contractor’s legal counsel is present, then MoDOT’s counsel also must be present to represent MoDOT’s ECR staff providing testimony. A different MoDOT staff attorney shall represent the Hearing Committee, as well. During the hearing, both sides will be allowed time to present their case and submit any additional evidence necessary for the Hearing Committee to make its final decision. The hearing will be closed, and the Hearing Committee will meet to discuss the findings. The Committee Chair will make the final determination and notify the contractor with a written decision. The determination will be provided to MoDOT’s Design Division for further bid consideration for both MoDOT and LPA bid proposals.

While the final decision of the Hearing Committee is not appealable to MHTC or FHWA, a bidder is afforded all the avenues allowed by State of Missouri law to contest the findings of the committee. In the event the contractor wants to further contest the decision of the Hearing Committee, the contractor could pursue an injunction towards a project’s progression. Typically, the contractor would only take this path should the Hearing Committee determine a GFE was not established and the bid proposal was determined “non-responsive”, as related solely to the DBE level of commitment submittal. Essentially this action forces the agency offering the contract work to reject the contractor’s bid as non-responsive. Doing otherwise would eliminate the eligibility of the federal funds used on the project, and therefore, the agency would not be able to fund the project.

146.1.3 Evaluation of the Contractor’s Performance Delivering the DBE Commitment at Project Completion

In addition to the DBE Hearing Committee evaluating the responsiveness of the DBE level of commitment presented with a contractor’s bid, the Hearing Committee also evaluates the performance of the contractor’s final DBE utilization upon the completion of a project. The Hearing Committee for both MoDOT and LPA project evaluation for final DBE usage consists of the Assistant State Construction and Materials Engineer – Chair, and two additional MoDOT employees with knowledge in the DBE regulations. The Chair could be performed by another position in MoDOT provided that person has some knowledge in the DBE regulations. When a contractor is awarded a contract that includes a DBE goal, the award is based on following through on the DBE level of commitment. It is understood the contractor either intended to meet the goal with its bid submittal or was approved to have established a good faith effort with a lesser amount. Prior to a project being closed out by MoDOT or a LPA, MoDOT’s ECR Division evaluates the final performance of the contractor towards the DBE commitment that was part of the basis of the initial project award. If the contractor’s final DBE utilization either met or exceeded the initial DBE approved amount, no further steps are needed and the project proceeds towards final close-out. If the contractor did not follow through on the DBE commitment made with the award of the contract, either the full DBE goal requested or GFE lesser amount, the Hearing Committee may be used to evaluate the contractor’s final performance for the situations when MoDOT’s ECR Division does not approve the final usage or provides the contractor a good faith effort determination. In this situation, a contractor that did not achieve its commitment and was not found to have made a GFE, at the end of the project, is subject to the assessment of liquidated damages. Liquidated damages can be for as much as the contractor lacked in meetings its DBE commitment since the initial contract award included the contractors DBE commitment level. It would be unfair to the unsuccessful bidders to allow the awarded low bidder to not carry through on this commitment. Doing otherwise presents an uneven bid environment for MoDOT and LPA bidding contractors.

146.2 DBE Subcontract

Additional References
DBE Program Federal Regulations 49 CFR Part 26
DBE Program State Regulations
Commercial Useful Function (CUF) Form
CUF Determination Form
Guidance for the CUF Form
Guidance for Completing the CUF Form
CUF Red Flags

DBE compliance consists of ensuring that the prime contracts utilize DBEs as indicated in the contract. Each contract has a contract goal and during the bidding process the prime contractor identifies the DBE vendors that it will use to achieve the project goal. These vendors will be a combination of subcontractors working on the project, suppliers, brokers and trucking companies. The prime contractor and MoDOT should ensure that the DBE vendors used to achieve the goal are performing a Commercially Useful Function (CUF).

The Resident Engineer should check the Request to Subcontract Form (C-220) for DBE subcontracts against the DBE Identification Submittal in the contract. The check should include a contract item by contract item review to confirm the line item bids vs. the actual commitment. Only those items for which the DBE is certified shall be listed on the C-220 form. If additional work is to be performed by the DBE for which they are not certified, a separate C-220 shall be submitted for the work and the DBE checkbox shall not be checked. No changes to the agreement between the Prime and the Subcontractor will be necessary. As with any subcontract item when the prime contractor indicates a partial unit price for a subcontract item, it shall be accompanied with justification for the partial price. An example may be items of work in which a prime is doing some of the work while the subcontractor is performing the remaining work. Justification of partial subcontracts is especially important with DBE work to monitor whether the DBE will be performing the work required. The level of justification may vary depending on the item but may include an actual copy of the subcontract between the prime contractor and DBE subcontractor. Refer to EPG 105.9.17 Subcontract Approval Request.

If there are overruns on the project for items a DBE could perform, the prime contractor will attempt to utilize additional DBE participation on the project. If underruns occur on a project for line items a DBE was scheduled to perform, the prime contractor will attempt to seek other DBE opportunities to achieve the DBE goal on the project.

146.3 Commercially Useful Function Verifications

Commercially Useful Function (CUF) basically consists of checking that the DBE vendor performs the work, supplies the material, has its own labor, and controls its work. The Resident Engineer office should conduct periodic checks to verify that the DBE vendors are performing a CUF. The verification for CUF varies depending on the capacity the DBE vendor is being used. The following describes what constitutes a check for CUF for various DBE uses.

146.3.1 DBE Subcontract – Performing Work Onsite

For DBE vendors performing work onsite, the CUF check consists of basic verification that the DBE vendor employs the workers, controls the work, purchases the materials and owns or leases their equipment. The Commercially Useful Function (CUF) Determination Form provides the standard questions to perform a CUF for an onsite DBE. Questions on this form will also require that the engineer check payroll information to ensure that the DBE contractor employees are independent of the prime or other non-DBE contractors on the project. In accordance with 49 CFR Part 26.55 (c), expenditures to a DBE contractor may only count toward DBE goals if the DBE is performing a CUF on that contract. The engineer shall conduct at least one CUF interview using the form for each DBE vendor on the contract, regardless of Part B status. Additional interviews should occur if the engineer notices a change in the DBE vendor or prime contractors operations.

When a DBE is a prime contractor on a project, a CUF should be performed on the DBE firm as well as any other DBE firms being utilized on the project. The CUF review should be conducted on the prime DBE on the project every sixty days until the work is completed on the project.

146.3.2 Disadvantaged Business Enterprise (DBE) Manufacturer/Supplier CUF Certification Process DBE Manufacturers, Suppliers and Brokers

Materials manufactured by DBE firms can be counted for DBE participation at the rate of 100% of the materials. DBE suppliers can be counted for DBE participation at the rate of 60% of the value of the material that they supply for the project. DBE brokers act as intermediaries generally for material supply as well and can be counted for participation at the rate of their brokerage fees. The External Civil Rights (ECR) Division will ensure through the firms certification process that the DBE supplier and/or broker conducts their service in accordance with the federal DBE regulations (49 CFR Part 26.55 (e)) regarding CUF. The engineer should report any activities that could indicate that supply has come from a source other than the DBE supplier or that materials are being delivered by someone other than the DBE Company. The prime contractor shall routinely supply verification that DBE suppliers are being used as indicated in the original participation. This may include copies of paid invoices, receipt of material certifications from the DBE supplier and/or communication between the DBE supplier and other contractors or the engineer’s office regarding material supply. If there is a request for the use of two-party checks, refer the contractor to the External Civil Rights Division for the required approval. The engineer shall conduct at least one CUF interview using the form for each DBE vendor on the contract. Additional interviews should occur if the engineer notices a change in the DBE vendor or prime contractors operations.

Manufacturers and suppliers must be listed in the Missouri Regional Certification Committee (MRCC) database. Description

The DBE Manufacturer/Supplier CUF Certification Process has been established to streamline the CUF review process for off-site DBE firms which supply materials on multiple projects, often concurrently, on a regular basis. The process allows more efficiency by eliminating the requirement of one CUF review to be performed per contract for DBE manufacturers and suppliers, and instead, certifies firms for a 30-day period based on satisfactory completion of a single CUF review.

CUF reviews performed on 30-day intervals or as needed, based on materials manufactured or supplied, will then serve as the required CUF review and verification per Federal requirements. Commercially Useful Function (CUF)

An initial CUF review will be performed by the inspecting district. This CUF review will cover all aspects of the DBE firm’s processes. The CUF review will cover all material shipped by the DBE firm to any project for a 30-day period from the date performed. Subsequent CUF reviews will be conducted at 30-day intervals, regardless of whether the DBE supplier has material that is delivered within that time frame. This is to ensure a CUF is available for use at any time it is needed as DBE suppliers are frequently active on contracts across the state. The inspecting district of a DBE manufacturer or supplier will be responsible for performing CUF reviews at the required frequency.

As part of the CUF manufacture / supplier review, the engineer completes a CUF form carefully verifying of all aspects of the DBE manufacturer or supplier’s process including manufacturing, handling and shipping, as applicable. The CUF form should be filled out with all pertinent information except for the Contract ID, Job No. and Prime Contractor fields, which are to be left blank. Completed CUF forms shall be filed in the Construction and Materials Division’s external SharePoint site. The file shall use standard file naming convention outlined in EPG 150.1.2 File Naming Convention.

When a DBE manufacturer or supplier sends materials to a MoDOT project, the engineer shall verify the DBE firm and the shipping date. With this information, the engineer should go to the Construction and Materials Division’s External SharePoint site and select the CUF report that represents the manufacturer or supplier in the date range for the subject materials delivered. The engineer shall add the Contract ID, Job No. and Prime Contractor and save a copy of the completed CUF form to the pertinent project document set of eProjects.

146.3.3 DBE Trucking Companies

DBE trucking companies are commonly used for participation on projects. Since DBE trucking companies generally are not submitted as a subcontractor, much like suppliers and brokers, the engineer must take steps to ensure that the trucking firms are being utilized in a CUF manner. The engineer should note in the DWR when DBE trucking firms are being utilized on the project with sufficient detail to verify that the trucking firm conducts the work indicated in the DBE Identification Submittal in the contract. To assist with this verification, the CUF Determination form should be used as well. The engineer shall conduct at least one Trucker Interview per each DBE trucking company on the project. Additional interviews should occur if the engineer notices a change in the DBE vendor or prime contractors operations.