102.17 Subletting Contract Work to Disadvantaged Business Enterprises (DBEs)
DISADVANTAGED BUSINESS ENTERPRISES (DBE’s)
DBE’s are defined as those prime and subcontractors, truckers, materials suppliers and other service providers who are certified by the Michigan Department of Transportation as meeting the requirements for certification at 49 Code of Federal Regulations Part 26 (49CFR Part 26).
Compliance with 49 CFR Part 26 will be required of all Contractors having a contract which is funded in whole or in part with federal funds.
The Contractor may, after award, request a waiver or modification of the DBE participation goal. The Contractor must submit evidence of good faith efforts to meet the DBE participation goal and include proof that on the date the Contractor became aware the DBE goal would not be met, the amount of contract work remaining was carefully reviewed to identify other work which could be subcontracted to DBE firms.
The Department should be notified immediately of a DBE’s inability to perform and the Contractor’s intent to obtain a substitute DBE. Contractors are required to make a good faith effort to replace a DBE that is unable to perform with another DBE. The substitute DBE must be approved by the Department prior to starting work.
Post award requests for waiver or modification of the goal for DBE participation will be submitted to the Office of Equal Opportunity (OEO). The Department will evaluate the good faith efforts of the Contractor based on the direction provided by 49 CFR Part 26, Appendix A - Guidance Concerning Good Faith Efforts of the Federal Register.
For Assistance, the OEO has made available guidance for Contractors “The Good Faith Effort Determination Application” for the submission of requests.
SUBLETTING CONTRACT WORK TO DISADVANTAGED BUSINESS ENTERPRISES (DBE)
DBE’s are defined as those prime and subcontractors, truckers, materials suppliers and other service providers who are certified by the Michigan Department of Transportation as meeting the requirements for certification at 49 Code of Federal Regulations Part 26 (49CFR Part 26).
Compliance with 49 CFR Part 26 will be required of all Contractors having a contract which is funded in whole or in part with federal funds.
The Contractor may, after award, request a waiver or modification of the DBE participation goal. The Contractor must submit evidence of good faith efforts to meet the DBE participation goal and include proof that on the date the Contractor became aware the DBE goal would not be met, the amount of contract work remaining was carefully reviewed to identify other work which could be subcontracted to DBE firms.
The Department should be notified immediately of a DBE’s inability to perform and the Contractor’s intent to obtain a substitute DBE. Contractors are required to make a good faith effort to replace a DBE that is unable to perform with another DBE. The substitute DBE must be approved by the Department prior to starting work.
Post award requests for waiver or modification of the goal for DBE participation will be submitted to the Office of Equal Opportunity (OEO). The Department will evaluate the good faith efforts of the Contractor based on the direction provided by 49 CFR Part 26, Appendix A - Guidance Concerning Good Faith Efforts of the Federal Register.
For Assistance, the OEO has made available guidance for Contractors “The Good Faith Effort Determination Application” for the submission of requests.
DBE Commercially Useful Function (CUF) Requirements
General Information
The Michigan Department of Transportation’s (MDOT’s) compliance procedure to ensure compliance with 49 CFR Part 26.37(b). These are effective immediately and apply to all federally funded MDOT and local agency construction projects that include participation of a DBE certified company. It should be noted that this applies to all projects with work completed by Disadvantaged Business Enterprise (DBE) firms, not just projects with a DBE goal.
DBE companies are prime and subcontract contracting firms, truckers, material suppliers, consultants, and other service providers who are certified as having met requirements of 49 Code of Federal Regulations Part 26 (49 CFR Part 26). A current list of all DBE companies certified to work in Michigan by work classification and work type is available at: http://www.michigan.gov/mucp.
MDOT’s DBE Program Procedures are MDOT’s federally-approved plan detailing how MDOT will implement its DBE program. The 2013 DBE Program Procedures document contains detailed and helpful information and is available at http://www.michigan.gov/mdotdbe under the Resources link.
DBE commitments, subcontracts, and the current DBE goal (when applicable) assigned to a project are also posted on MDOT’s Construction Contract Inquiry website at http://mdotcf.state.mi.us/public/trnsport/.
The Office of Business Development (OBD) has developed a supplemental guide to assist construction staff in the monitoring of CUF activities. The Michigan Department of Transportation (MDOT) Disadvantaged Business Enterprise (DBE) Program Guide for Commercially Useful Function (CUF) Monitoring on Federal Aid Projects is available on the MDOT DBE web site,
http://www.michigan.gov/mdotdbe under the Resources link.
Preconstruction Meeting
Contractors should be asked to provide verbal notice of any DBE subcontractors or vendors that will be working on the project. It should be emphasized that any DBE work that will occur off project site must be documented by construction staff and therefore, the prime contractor must provide notice (dates, times, locations, etc.) to the Engineer in advance of this work. This information is to be captured in the meeting minutes and the minutes are provided to all project staff.
Construction Guidance
The following guidance is provided to aid in determining if a CUF has been provided.
DBE companies are required to perform a CUF. This means that each DBE firm must be responsible for execution of a contract or a distinct element of the contract work by actually performing, managing, and supervising the work involved using their own managers, workers, equipment, and materials ordered and paid for by the DBE company. A DBE company does not perform a CUF if their role is limited to that of an extra participant in a transaction through which funds are passed in order to obtain the appearance of a CUF. DBE purchases of materials or supplies from the prime contractor/subcontractors on the project is a CUF violation. DBE credit will not be provided to the prime contractor/subcontractors if this occurs.
Construction staff must monitor and document that work committed to DBE companies is actually performed by said companies. This will be accomplished through the use of form 4109, Commercially Useful Function (CUF) Review. Completion of this form is required for all DBE companies on all federally funded projects including projects with no DBE goal. This includes DBE truckers, suppliers and other vendors where a subcontract is not required. In many cases, construction staff will need to reference the DBE commitment information to ensure that all companies are reviewed. Form 4109 is available at the following website: http://www.michigan.gov/mdot/0,4616,7-151-9625_23109---,00.html
OBD will determine CUF performance for DBE liquid asphalt suppliers. Questions regarding liquid asphalt suppliers are to be directed to the OBD liquid asphalt topic analyst at 517-241-0052. DBE Trucking CUF performance (IDR and form 4109) is to be documented and verified by construction staff.
Purchase orders are to be provided to construction staff for off-site DBE work (suppliers) and for trucking work. If they are not provided, a request should be documented to the prime contractor. Construction staff is to verify that purchase order work was completed by suppliers and truckers. Non-asphalt trucking related questions may be directed to the OBD trucking topic technician at 517-335-6537.Supplier questions may be directed to the OBD CUF specialist at 313-965-2326.
General performance of DBE companies is to be documented on Inspector Daily Reports (IDR) as would be completed for non-DBE contractors. IDR reporting is to include noting the DBE companies that are on site, the work that they are completing, material and equipment usage, etc.
If any DBE companies are missed during their construction operations or support activities the Construction Engineer must immediately contact the OBD CUF specialist at 313-965-2326 to determine what documentation is available and what actions are to be taken.
To ensure construction staff is fully aware of all DBE participation elements (commitments, subcontractors, truckers, suppliers and service providers) committed to a project with a DBE goal, the construction/project engineer is notified of all commitments by the Contracts Services Division (CSD). The email notification includes all DBE commitment specifics and whenever a commitment is added,changed, or when the goal on the project has been modified. These e-mails are to be shared with construction staff assigned to the project and are only generated on race-conscious projects. The industry may use form 0178, Disadvantaged Business Enterprise (DBE) Participation, to indicate a DBE is being used on a project that doesn’t have a DBE goal. This can be noted by selecting the appropriate check box on form 0178.
If a DBE fails to perform a CUF (presence of a non-CUF indicator, fails to complete work, etc.) or if a contractor fails to meet its obligations (commitments, percentage requirements, etc.) under the DBE regulations and/or contract provisions, the Construction Engineer must immediately notify the OBD CUF specialist at 313-965-2326. Replacement of a DBE company requires a five (5) day written notice to the DBE firm with a copy to the construction/project engineer and OBD. These performance issues are also to be reflected on the respective contractor performance evaluation. The rating must include descriptive comments and/or narrative in the comments section for both the DBE company and the prime contractor as applicable at the completion of the project the construction/project engineer will certify that all DBE companies provided a CUF. This certification will be noted on form 1105, Final Estimate Package Memo. The certification language options will be as follows:
- I certify that to the best of my knowledge the contracting records have been reviewed, the Disadvantaged Business Enterprise (DBE) companies have been monitored on the project site and work committed to DBE companies has been performed by the respective companies.
- I certify that to the best of my knowledge the contracting records have been reviewed, the Disadvantaged Business Enterprise (DBE) companies have been monitored on the project site and work committed to DBE companies has been performed by the respective companies with the exception of the following companies which have been forwarded to the Office of Business Development (OBD) for further investigation. Companies:
DBE Performance Indicators
Disadvantaged Business Enterprise (DBE) contractors are responsible for the performance, management, and supervision of distinct elements of work in accordance with the Michigan Department of Transportation’s (MDOT’s) Standard Specifications for Construction and the current version of MDOT’s DBE Program Procedures. MDOT requires prime contractors to self-perform at least 40 percent of the contract work and subcontractors must self-perform at least 50 percent of their own work. Non-trucking DBE work subcontracted to non-DBE companies is not eligible for DBE credit.
For every DBE performing work on a federally-assisted contract, regardless if there is a goal or not, CUF performance is to be documented on an Inspector’s Daily Report (IDR) and form 4109. If documented CUF performance requires further investigation as noted on form 4109, notify the Office of Business Development (OBD) as follows:
- ProjectWise Users – Completed 4109 forms will be submitted for storage into ProjectWise. Advance the workflow to “Const-OBD Notified” and OBD staff will be notified. Please include any additional information in the body of the email that will be helpful in the CUF review by OBD;
- Non-ProjectWise Users - Email the completed 4109 form to MDOT-CUF@michigan.gov (be sure to indicate the region where the project is located in the subject line of the email). Please include any additional information in the body of the email that will be helpful in the CUF review by OBD. If you have questions, contact OBD at 313-965-2326 or at MDOT-CUF@michigan.gov.
OBD will review and investigate CUF concerns. Once complete, notification will be provided to the project office by changing the state of the CUF document in ProjectWise to “OBD Review Complete” and sending an automated email or for non-ProjectWise users, project offices will be emailed directly.
Questions should be directed to the OBD CUF specialist at 313-965-2326 or at MDOT-CUF@michigan.gov.
DBEs may lease equipment consistent with normal industry practice and, when requested, they must
submit their lease agreements for all leased equipment. OBD retains this information. Equipment used by a DBE must be subject to the full control of the DBE. Equipment operators must be employees of the DBE and included on DBE payrolls. If necessary, a DBE may lease both the equipment and the operator, although the DBE must be responsible for all payroll and labor compliance requirements. It should be noted that DBE companies are not permitted to lease equipment from the prime contractor or any other non-DBE contractor/subcontractor working on the same project. However, because of space limitations typically associated with the use of heavy equipment, such as cranes, a DBE may use a crane or other heavy equipment supplied by the prime or another subcontractor on the project. Charges for use of this equipment cannot be taken out of the amount the DBE is owed. Questions regarding heavy equipment usage and leasing are to be directed to the OBD CUF specialist at 313-965-2326.
Prompt Payment
49 CFR 26.29 requires DBE and non-DBE subcontractors to be paid promptly. MDOT interprets prompt payment to mean the prime Contractor will pay each subcontractor for satisfactory performance of its contract no later than ten calendar days from receipt of each payment the prime Contractor received from the Department. The prime must further return retainage payments to the subcontractor with ten calendar days after the subcontractors work in satisfactorily completed. Satisfactorily completed means work is completed in accordance with the contract, required paperwork is in, and MDOT has inspected and approved the work and determined the final quantities.
Disadvantaged Business Enterprise (DBE) Participation as Regular Dealers of Liquid Asphalt
Effective immediately, MDOT is implementing a new program to monitor DBE supply and delivery of liquid asphalt to MDOT projects. This program is in response to the Federal Highway Administration’s (FHWA) concerns regarding the performance of a Commercially Useful Function (CUF) when using DBE liquid asphalt suppliers. There are three new MDOT forms associated with this program:
- MDOT Form 0192, Petroleum Company Account(s) Information and Liquid Asphalt Cement Tractors and Trailers Information
- MDOT Form 0193, Disadvantaged Business Enterprise (DBE) Regular Dealer Liquid Asphalt Supplier Participation Affidavit – Prime
- MDOT Form 0194, Total Quantities of Liquid Asphalt Cement Supplied
This program is approved by FHWA and will meet all CUF requirements. It involves the participation of contractors who successfully bid on MDOT projects that include the use of liquid asphalt cement, and all DBEs who will keep the work classification TBR (Asphalt and Petroleum Products – Regular Dealer). The program procedures are as follows:
The successful bidder/prime contractor is responsible for compliance with the governing DBE regulations (49 CFR 26.55) included in each MDOT project proposal and on the internet at http://www.access.gpo.gov/nara/cfr/cfr-table-search.html. Prime contractors must make every effort to ensure that arrangements and practices on the project are in line with DBE regulations.
To include DBE regular dealer participation toward project goals, the following criteria must be met:
1. The DBE must directly negotiate (i.e., receiving price quotes, agreeing to pricing, and ordering the required grade of liquid asphalt cement) with the petroleum refinery for the grade of liquid asphalt cement they are providing for the project. The prime is not to negotiate on behalf of the DBE with the petroleum refinery. All DBEs who will keep the work classification TBR need to provide information on their accounts with refineries on an annual basis using MDOT Form 0192.
2. The DBE must arrange for the delivery of materials it supplies for the project, and maintain documentation of the delivery of the liquid asphalt cement (i.e. invoices, delivery tickets, bank statements) to submit to MDOT, if requested.
3. The DBE may lease tractors and trailers on a project; however, it must be through a long-term lease agreement, and not on an ad hoc or contract-by-contract basis. This equipment may not be leased from the prime asphalt paving contractor (or any affiliate of the asphalt paving contractor) for whom the DBE is supplying the project’s liquid asphalt cement. The DBE must be able to supply all lease agreements upon request by MDOT.
4. DBEs must pay the refineries with their own funds. The prime is not to pay the refineries directly for the materials the DBE is designated to supply. Payments made by DBEs for material they purchase must come from their own independent bank accounts. A DBE may not acquire material using funds from bank accounts belonging to or shared with the prime contractor.
5. No sales between the prime and any of its affiliates via the DBE are to be counted toward the project’s DBE goal.
6. Any joint check arrangement must be pre-approved by MDOT before the arrangement or transaction takes place. Use MDOT Form 0183 to request approval. A joint check is a two-party check between a subcontractor, a prime contractor, and a materials supplier. Joint checks are used to guarantee payment to the supplier for materials used by the subcontractor.
7. Verification of Regular Dealer Status: MDOT will obtain information from each certified DBE regular dealer to update its files and ensure continued eligibility in work classification TBR.
On an annual basis, MDOT requires DBE regular dealers to submit MDOT Form 0192, to ensure that:
- The DBE owns delivery equipment and has valid lease agreements in place (if supplementing his/her asphalt cement equipment).
- The DBE has accounts and lines of credit with the oil refineries from whom it purchases the liquid asphalt cement.
8. Pre-Award Approval: Primes must submit a DBE Regular Dealer Liquid Asphalt Supplier Participation Affidavit (MDOT Form 0193, ) for approval, along with the DBE Participation Form, (MDOT Form 0178). The prime affirms in the affidavit that it has reviewed the DBE requirements under 49 CFR 26.55 found in the project proposal, and they believe their proposed arrangement with the DBE liquid asphalt supplier is in compliance with the regulations. MDOT’s Contract Services Division will receive and forward the liquid asphalt affidavit to the designated Office of Business Development (OBD) staff for approval. MDOT staff will make every effort to complete the review of the affidavit and make a determination within five working days. This review includes:
- Verifying the prime selected an eligible DBE (Contract Services and OBD both do this).
- Crosscheck the DBE’s file and participation on other projects to determine whether the DBE is over their credit limit.
- Ensure a purchase order is submitted with each project, post-award and prior to delivery.
- Ensure there is an anticipated date of transaction with the DBE.
- The DBE is not allowed to lease equipment from the prime or the prime’s subsidiaries/affiliates. OBD staff will review the DBE’s record to ensure that the DBE does not lease equipment from the prime specified on the project under review.
9. Follow-up review: DBEs must complete an MDOT questionnaire (MDOT Form 0194) regarding their supplier activities on the project. The OBD staff will contact the DBE within ten days following the date the prime specified on the affidavit to determine if the sale and delivery of material took place. Staff will continue to follow up until the transaction takes place. Once the date of transaction is determined, the questionnaire will be forwarded to the DBE. The questionnaire is to be returned to the OBD within ten days.
10. If MDOT receives information indicating the DBE firm may not be performing a commercially useful function as specified under 49 CFR 26.55, they will request appropriate documentation to reasonably verify the material the DBE supplied. This documentation may include the following:
- Invoices for material.
- Proofs of payment, such as canceled checks and bank statements.
- Additional lease agreements for equipment not currently on file.
If it appears the terms specified in the approved MDOT Form 0178 are not being met, the issues will be addressed with the prime, DBE, project office, MDOT administration, FHWA, etc., as appropriate.
11. Finalization: Once all information is obtained, a determination is made as to whether the DBE supplied the volume of material reported on the approved MDOT Form 0178.
If MDOT determines that the DBE did not perform a commercially useful function, or failed to supply the amount of material specified in the MDOT Form 0178, the DBE will be given an opportunity to provide information to rebut the findings, as required in 49 CFR 26.55(c) (3) and (4).
If the approved level of participation is not met, MDOT will inform the prime regarding the amount of liquid asphalt being credited to the project as DBE participation. All MDOT forms listed in this article are fillable and available on MDOT’s public Web site at http://mdotwas1.mdot.state.mi.us/public/webforms/.