Georgia Tech Procurement Assistance Center

DBE program ruled burdensome but constitutional

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idotThe federal program that offers advantages for minority and women-owned businesses on highway construction contracts may disproportionately burden subcontractors, but it is still constitutional, the Seventh Circuit ruled.

Midwest Fence, a specialty contractor focused on guardrails and fencing, challenged the federal government’s program that offers help for disadvantaged business enterprises (DBEs), small businesses owned and managed by racial minorities and women.

The DBE program, in effect since 1983, establishes a goal of spending at least 10 percent of federal highway funds on contracts with disadvantaged businesses.  DBE business owners must certify their disadvantaged status, and qualify only if their net worth does not exceed $1.32 million.

Participation in the federal program is a requirement for states that want to use federal highway funds.

However, the program offers the states significant flexibility.  Contractors bidding on highway construction work in Illinois cannot be automatically rejected for failure to meet diversity goals, and quotas are flat-out prohibited. Instead, the state must determine if the bidder has made good faith efforts to find DBE subcontractors that could perform 10 percent of the work.

Keep reading this article at: http://www.courthousenews.com/2016/11/07/perks-for-minority-owned-businesses-upheld.htm

Contractor to pay over $8 million for scheme to fraudulently claim credit for work performed by DBE

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Granite Construction, Incorporated (Granite), a nationwide construction and public works company that is publicly traded on the New York Stock Exchange, has entered into a non-prosecution agreement and agreed to pay more than $8 million to the federal government and the Metropolitan Transportation Authority Office of Inspector General (MTA-IG) to resolve a criminal investigation into a disadvantaged business enterprise (DBE) fraud scheme perpetrated by Granite’s wholly-owned subsidiary, Granite Construction Northeast, Incorporated (GCN), previously known as Granite Halmar Construction Company, Incorporated.  In addition, Granite will provide continuing cooperation to the government and maintain far-reaching corporate reforms.

Justice Dept. sealPursuant to the non-prosecution agreement signed on November 24, 2015, Granite acknowledged and accepted responsibility for a DBE fraud scheme related to GCN’s work on a contract for the MTA that involved the construction of a bus depot in Maspeth, Queens, NY (the Project).  The Project was largely federally funded.

The investigation revealed that GCN served as the prime contractor on the Project after being awarded the prime contract for the job by the MTA, a contract for which GCN was ultimately paid approximately $222 million.  The contract required GCN to comply with the Disadvantaged Business Enterprise Program (the DBE program).  Pursuant to that program, as the prime contractor, GCN was obligated to make good faith efforts to subcontract a specified percentage of work on the prime contract to certain disadvantaged business enterprises (DBE companies).

GCN, certain other non-DBE companies (the actual companies), and a DBE company that acted solely as a front company in connection with the Project (the front company)  conspired to arrange the following scheme to avoid compliance with the DBE program:

(a) the front company would be awarded a subcontract worth approximately $22 million, to perform certain construction work (the specified work) on the Project;

(b) the actual companies would perform the specified work, but payroll would be “run through” the front fompany, with paperwork arranged to make it appear as if the front company was performing the specified work; and

(c) GCN would pay the front company a $500,000 “DBE fee,” although the front company would not perform a “commercially useful function” on the specified work, as required by state and federal regulations.

As the front companies performed the specified work, GCN submitted to officials from the MTA, as required, periodic progress reports that purported to represent the percentage of work performed by DBE companies on the prime contract.  From 2004 through approximately 2008, GCN falsely represented in those reports that the front company had performed a “commercially useful function” in performing thespecified work, when in fact, the specified work had actually been performed by the actual companies, and the front company had not performed any such commercially useful function.  (In August 2013, one of the actual companies, A.J. McNulty & Company, also entered into a non-prosecution agreement with the United States Attorney’s Office for the Eastern District of New York to resolve a criminal investigation into the same scheme.  Under the terms of that agreement, A.J. McNulty agreed to forfeit $850,000 to the federal government and pay $100,000 to the MTA-IG.) As a result, GCN deprived the MTA of its rights under the prime contract and deprived legitimate DBE companies of the opportunity to perform the specified work and be paid for it.

In light of a comprehensive internal investigation conducted by Granite, Granite’s complete acceptance of responsibility for GCN’s unlawful conduct, Granite’s cooperation with the government, the fact that the GCN employees most responsible for GCN’s unlawful conduct were separated from GCN and Granite years before the government’s investigation began, and Granite’s far-reaching remedial measures, including site visits by compliance program staff and mandatory training for appropriate Granite managers and employees, the government has agreed not to prosecute Granite or GCN for GCN’s criminal conduct provided that Granite complies for two years with all the terms of the agreement executed today. Significantly, this agreement also secures civil forfeiture to the federal government of $7.25 million in connection with this fraud, as well as a payment of $1 million to the MTA-IG.

“GCN defrauded the MTA by falsely claiming that millions of dollars worth of construction work was performed by a DBE company.  Today’s resolution marks a significant step in our continued effort to eliminate DBE fraud in New York’s construction industry and also recognizes Granite’s decision to timely accept full responsibility, provide complete cooperation, and take remedial measures to enforce best industry practices,” stated U.S. Attorney Capers.  Mr. Capers thanked the investigative agencies for their outstanding commitment and dedication over the course of this investigation.

“As evidenced by the non-prosecution agreement entered into by Granite Construction, Inc., we remain steadfast in our commitment to maintaining the integrity of the U.S. Department of Transportation’s (USDOT) Disadvantaged Business Enterprise program,” said Regional Special Agent-in-Charge Shoemaker, USDOT Office of Inspector General.   “Working with the Secretary of Transportation and other DOT leaders, and our law enforcement and prosecutorial colleagues, we will continue to protect the taxpayers’ investment in our nation’s infrastructure from fraud, waste, abuse, and violations of law.”

“This investigation uncovered a scheme that exploited a program designed to encourage disadvantaged businesses to participate in Metropolitan Transportation Authority projects,” stated IRS-Criminal Investigation Special Agent-in-Charge Kitchen.  “IRS-Criminal Investigation is proud to be part of the collective law enforcement effort on this investigation; it demonstrates the government’s resolve to protect public funds and its commitment to ensure the public’s trust.  The fact that GCN has entered into an agreement with the government will further serve and protect the public’s best interest.”

“Today’s announcement clearly reflects the firm commitment by our Office and our investigative and prosecutorial partners to utilize all avenues to ensure compliance with DBE requirements and to create and maintain a level playing field on which all qualified DBEs have a fair and equal opportunity to bid for and participate in all MTA projects.  We will continue to direct our energies and share of settlement proceeds to support the MTA Small Business Development Program and other productive efforts to expand opportunities for disadvantaged business enterprises,” stated Inspector General Kluger.

“Reporting that work was performed by a DBE company involved manipulating American workers and processing their pay through a front company in order to conceal the fraud.  We will continue to work with our law enforcement partners to protect contract opportunities for legitimate disadvantaged businesses,” stated Special Agent-in-Charge Garcia of the New York Regional Office, U.S. Department of Labor – Office of Inspector General, Office of Labor Racketeering and Fraud Investigations.

Source: http://www.justice.gov/usao-edny/pr/granite-construction-pay-more-8-million-forfeiture-and-penalties-engaging-scheme

Marines could do a better job on small biz contracts, IG says

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Marine Corps Systems Command is failing to adequately ensure small business contractors get access to defense contracts, according to an Inspector General’s report.

Marine CorpsThe report found that the Quantico, Virginia-based command had not ensured small business contractors had opportunities to subcontract on 12 prime contracts valued at $221 million, offered no compliance tracking on four contracts, did not follow up on large businesses not meeting small business-goals and awarded contracts without subcontracting plans.

“As a result, small businesses may have been denied subcontracting opportunities that large businesses were required to make a good faith effort to provide,” the report said. “In addition, MCSC contracting officials did not determine whether the prime contractors are making good faith efforts to comply with negotiated subcontracting goals and whether liquidated damages should be assessed.”

Keep reading this article at: http://www.federaltimes.com/story/government/acquisition/2015/11/16/marines-could-do-better-job-small-biz-contracts-ig-says/75874242/

 

SBA proposes stronger enforcement of subcontracting plans

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Large businesses’ subcontracting plans would be subject to stricter compliance standards under a SBA proposed rule introduced December 29, 2014.

The intent of the new regulations is to compel prime contractors to make good faith efforts to comply with their subcontracting plans by implementing reporting mechanisms and harsher penalties for fraudulent actions or actions made in bad faith.  Small businesses subcontractors are likely to agree that these are positive changes.

Many large businesses take their subcontracting obligations seriously, and make every effort to meet (or exceed) their goals.  But there are also the bad apples–those that continually over-promise and under-deliver when it comes to small business subcontracting.  Dealing with these bad apples have led some small businesses to become skeptical that large primes will follow through on their stated subcontracting intentions.

The SBA’s proposed regulation attempts to address this problem.

Comments on SBA’s proposed rule are due by Feb. 27, 2015.

Keep reading this article at: http://smallgovcon.com/statutes-and-regulations/subcontracting-plans-sba-proposes-stronger-enforcement/

– See more at: http://smallgovcon.com/statutes-and-regulations/subcontracting-plans-sba-proposes-stronger-enforcement/#more-3551

MnDOT to pay $300,000 contractor settlement

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The Minnesota Department of Transportation (MnDOT) will pay $300,000 to C.S. McCrossan Construction Inc. as part of a settlement in a suit the Maple Grove-based contractor filed after the agency rejected its low bid for work on a portion of the St. Croix bridge project.

McCrossan had submitted a bid nearly $6 million lower than the one that was awarded, but MnDOT gave the job to another firm because McCrossan hadn’t shown it would comply with minority and women hiring rules under the federal Disadvantaged Business Enterprise program. In an order signed Monday by state Chief Appeals Court Judge Matthew Johnson, McCrossan agreed to end its suit claiming the bid was improperly rejected.

MnDOT awarded a $58.1 million bid for the contract to partners Ames Construction Inc. and Lunda Construction Co. to complete approach work on the bridge. McCrossan’s proposal of $52.3 million was lowest and also got the best technical score under a MnDOT rating system.

Keep reading this article at: http://www.startribune.com/local/east/220292081.html

‘Good faith efforts’ — effective enforcement or a convenient excuse?

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[Note: The following article is taken from a blog operated by Bryan Cave’s Airport Concessions Law blog.  The article was originally published on July 5, 2013.  A link to the blog appears at the end of this excerpt.]

Over the years, I have often heard complaints within the airport industry about the Good Faith Efforts (“GFE”) standard contained in the federal regulations governing Disadvantaged Business Enterprises. The complaints generally decry the use of GFE and consider the GFE requirements more form than substance, a convenient excuse for non-compliance. Although there may be some merits to the complaint, the effectiveness of the GFE standard hinges upon the manner in which recipient applies the standard to a bidder’s efforts to meet the goal.

The GFE requirements for GFE on a federally assisted contract that contain contract goals is governed by 49 CFR Part §26.53. Section 26.53 provides that when a DBE goal is established, the recipient can award the contract only to a bidder or offeror that has made a GFE to achieve the contract goal. The GFE Guidance is contained in Appendix A to Part 26 and outlines the factors or efforts that should be considered in making the determination. It is important to note that the list of factors contained in Appendix A is not intended to be exhaustive and other factors may be considered in making the GFE determination.

The GFE guidance articulates a clear standard that requires that the bidder’s efforts to meet the goal must be reasonable and necessary steps to meet the goal. The scope, intensity and appropriateness of the bidder’s efforts should be evaluated in order to determine if the efforts would reasonably lead the bidder to obtaining sufficient DBE participation. Mere pro forma efforts are not good faith efforts to meet the goal. The guidance also cautions the recipients not to reject bona fide GFE by a bidder or offeror to meet the goal. In short, the determination of a bidder or offeror’s good faith efforts is a judgment call and the recipient must make a reasoned and balanced decision in making the GFE determination.

Keep reading this article at: http://bryancaveairportconcessionslaw.com/good-faith-efforts-fact-or-fiction/ 

DBE bid protests: One contractor’s loss is another’s gain

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Lately, competition for public works projects is fierce, and bidders, using every possible advantage to obtain contracting opportunities, seem resigned to combing through a low bid to determine if “all I’s are dotted and T’s are crossed.”

As part of this process, the Disadvantaged Business Enterprise (“DBE”) compliance requirements have turned out to be a fertile ground for bid protests, particularly on federally funded state highway projects.  The DBE program provides a vehicle for woman and minority-owned, small businesses to participate in public projects.  As part of this program, contractors on federal public contracts are required to meet certain DBE subcontracting goals (for example, 12% of the total bid amount must be subcontracted to certified woman or minority-owned firms).

The requirements for demonstrating DBE participation, however, can be complicated and fraught with pitfalls for both DBEs and contractors alike.  Failure to comply with the DBE bidding requirements to the letter is a common basis for finding a bid non-responsive, and, thus, provides numerous bidders with a basis to protest, including (i) questioning a prime contractor’s achievement of the project’s DBE goal or good faith efforts to meet that goal, (ii) the legitimacy or certification of a listed DBE entity, or (iii) a DBE’s ability to perform a Commercially Useful Function on a project.

For example, a general contractor who submitted a bid which came in “second,” may challenge award of the project to the apparent low bidder on the basis that the DBE firm that the low bidder proposes to use is either not properly certified to perform the work proposed or is not a legitimate DBE firm.  Such protests provide a lucrative opportunity for the second low bidder who may ultimately be awarded the project.

Keep reading this article at: http://www.ac-lawyers.com/news/2013/05/14/dbe-bid-protests-one-contractors-loss-is-anothers-gain

Deadline to comment nears as major changes to US DOT’s DBE program loom

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There is a federal Notice of Proposed Rulemaking (NPRM) pending that could spell major changes in the way the U.S. Department of Transportation administers its disadvantaged business enterprise (DBE) program.  DBE requirements are a part of all contracting performed by the nation’s airports, state highway departments, and transit systems.

Some predict that if the new rules go into effect as currently proposed, DBEs will see a decrease in contract opportunities and an increase in the burden on DBE-certified firms.

The deadline for comments to the USDOT proposed rule was originally November 5, 2012, but was extended to 11:59pm on December 24, 2012.  The NPRM can be found at http://www.regulations.gov/?sms_ss=gmail&at_xt=4d46cf13eca091f6,0#!docketDetail;D=DOT-OST-2012-0147;dct=FR%2BPR%2BN%2BO%2BSR.

DBE firms and businesses who could potentially benefit from DBE contracting are being urged by several advocacy groups to submit comments by the deadline.  Contractor trade associations already have been active in submitting comments, pro and con.

The following is a summary of the most significant proposed changes:

Rebuttal of Economic Disadvantage: The most noteworthy proposed revision is USDOT’s desire to broaden the areas which automatically rebut a presumption of disadvantage.  Currently, a Personal Net Worth (“PNW”) exceeding $1.32 million automatically rebuts the presumption of economic disadvantage, but a local Office of Minority and Women Business Enterprises (an OMWBE operated by an airport, highway department or transit system) may rebut the presumption if it has a “reasonable basis to believe the individual is not socially or economically disadvantaged.”  USDOT proposes including, as part of that rule, a second statement taken from USDOT’s guidance (which is currently not an official mandate):

  • If the person demonstrates an ability to accumulate substantial wealth, has unlimited growth potential, or has not experienced or has not had to overcome impediments to obtaining access to financing, markets, and resources, the individual’s presumption of economic disadvantage is rebutted, even if it individual’s PNW is less than $1.32 million.

USDOT states that with this language, it is appropriate for recipients (certifying agencies such as OMWBE) to review the total fair market value of the individual’s assets and determine if that level appears to be “substantial” and indicates an ability to accumulate substantial wealth.  The purported purpose of this provision is to give recipients a tool to exclude an individual who, in overall asset terms, is what a reasonable person would consider to be a wealthy individual, even if their liabilities bring their PNW below the $1.32 million cap.  Notably, USDOT also seeks comment as to whether a more “bright-line” approach would be preferable, such as saying that someone whose Adjusted Gross Income on his or her Federal income tax return was over $1 million for two or three years in a row would lose the presumption of economic disadvantage, regardless of PNW.

New Personal Net Worth Form: USDOT proposes a newly designed PNW statement required of all applicants.  The new form would include all assets owned by the individual, including ownership interests, personal assets, and the value of the personal residence.    USDOT also seeks comment on whether the spouse of an applicant owner should have to file a PNW statement.

Transfers:  USDOT proposes to directly add a paragraph into the regulation restating the requirement that assets transferred to an immediate family member for less than fair market value within the last two years can be counted toward an individual’s PNW calculation.  USDOT also proposes that transfers from business owners to the companies be counted toward the owner’s PNW to avoid artificially depressing that owner’s PNW.

Certification Related Provisions:  USDOT also proposes several changes to how ownership and control are determined.  Specifically, the rule will require applicants to submit additional proof as to the sufficiency of their initial capital contribution and the circumstances of any funding streams to the firm since its inception, including collateral value, proof of asset ownership, and more stringent guidelines relating to deposits made by the applicant.

Good Faith Efforts:  USDOT adds some clarification for establishing Good Faith Efforts to meet the DBE goal.  USDOT states that prime contractor bidders whose bid includes a promise to include DBEs after the contract awarded is not to be considered as a good faith effort. USDOT proposes that bidders would have two options: (1) bidders may submit Good Faith Effort documentation along with original bids, or (2) Bidders may submit good faith documentation within one day of being notified of their winning bid.

Counting Trucking Operations:  USDOT proposes to revise the current requirements for how much of a DBE trucking company’s involvement can be counted towards a DBE goal. The proposal would give credit to a DBE that leases trucks from non-DBE entities but uses its own employees as drivers.  This change is already implemented in many states.

There are several ways to submit comments on these proposed rule changes.  The easiest way is to simply file comments online at the regulations.gov web site.   Go to www.regulations.gov and then type in docket number OST–2012–0147.   This will connect you to a web page where you can type-in and/or upload your comments. Be sure to include the docket number in any submission you make.

Please note that all comments, including any personal information you provide, will become part of the docket and will be publicly posted without change at www.regulations.gov.

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