“Disadvantaged Business Enterprise” (“DBE”)
Under successive acts of Congress, the divisions of the U.S. Department of Transportation, including the Federal Highway Administration, the Federal Transit Administration, and others, are required to ensure that state and local public agencies which receive project funding from them establish DBE participation “goals” for women, certain racial or ethic grounds, and other “disadvantaged” types of businesses.
Those public agencies, in turn, must ensure that bidders and contractors on those projects meet such DBE goals or make “good faith efforts” to try to meet those DBE goals either by being a DBE or Joint Venture with a DBE majority partner, or by using sufficient amounts of DBE subcontractors and suppliers to meet those goals. The goals, are typically expressed as a percentage of the cost of a project, or a percentage of various portions of or types of work on a project.
“The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 1101(b), 119 Stat. 1144 (2005), authorizes the U.S. Department of Transportation to distribute funds to states for transportation-related projects. TheAct is the most recent federal statute providing for race- and gender-based preferences in the transportation contracting industry in response to pervasive and ongoing discrimination. See Western States, 407 F.3d at 988 & n.3. The Act directs the Secretary of Transportation to ensure that 10% of funds distributed to states and municipalities are expended on "disadvantaged business enterprises." § 1101(b)(2), 119 Stat. at 1156.” (Emphasis added).
Associated Gen. Contrs. of Am. v. Cal. DOT (9th Cir. 2013) 713 F.3d 1187, 1190.
“The specifics of this minority preference program are set forth in regulations promulgated by the [U.S. Department of Transportation] See 49 C.F.R. pt. 26 (1999).
“[T]he regulations seek "to create a level playing field on which [disadvantaged business enterprises] can compete fairly for DOT-assisted contracts." Id. § 26.1(b). A disadvantaged business enterprise ("DBE") is defined as a small business owned and controlled by one or more individuals who are socially and economically disadvantaged. Id. § 26.5. Although the term "socially and economically disadvantaged" is race- and sex-neutral on its face, the TEA-21 regulations presume that Black Americans, Hispanic Americans, Native Americans, Asian-Pacific Americans, Subcontinent Asian Americans, and women are socially and economically disadvantaged . 4 Id. § 26.67(a). This presumption of disadvantage is rebutted where the individual has a personal net worth of more than $ 750,000 or a preponderance of the evidence demonstrates that the individual is not in fact socially and economically disadvantaged. Id. § 26.67(b). . . .”
“The regulations do not establish a nationwide DBE program centrally administered by the USDOT. Rather, the regulations delegate to each State that accepts federal transportation funds the responsibility for implementing a DBE program that comports with TEA-21. The regulations accordingly explain that the 10% DBE utilization requirement established by the TEA-21 statute is merely "aspirational" in nature. Id. § 26.41(b). The statutory goal "does not authorize or require recipients to set overall or contract goals at the 10 percent level, or any other particular level, or to take any special administrative steps if their goals are above or below 10 percent." Id. § 26.41c.” (Emphasis added).
W. States Paving Co. v. Wash. State DOT (9th Cir. 2005) 407 F.3d 983, 988-989; Klaver Constr. Co. v. Kan. DOT (D. Kan. 2002) 211 F. Supp. 2d 1296, 1298-1299.
The notice given prior to the promulgation of recent amendments to portions of 49 C.F.R. Part 26 explains the rationale and continuing need for the DBE program requirements:
“The Continuing Compelling Need for the DBE Program
“As numerous court decisions have noted, n1 the Department's DBE regulations, and the statutes authorizing them, are supported by a compelling need to address discrimination and its effects. This basis for the program has been established by Congress and applies on a nationwide basis. Both the House and Senate FAA reauthorization bills contained findings reaffirming the compelling need for the program. We would also call to readers' attention the additional information presented to the House of Representatives in a March 26, 2009, hearing before the Transportation and Infrastructure Committee and made a part of the record of that hearing and a Department of Justice document entitled "The Compelling Interest for Race- and Gender-Conscious Federal Contracting Programs: A Decade Later An Update to the May 23, 1996 Review of Barriers for Minority- and Women-Owned Businesses" and the information and documents cited therein. This information confirms the continuing compelling need for race- and gender-conscious programs such as the DOT DBE program.
“n1 See for instance Adarand Constructors, Inc. v. Slater, 228 F.3d 1147 (10th Cir. 2000), Northern Contracting Inc. v. Illinois Department of Transportation, 473 4.3d 715 (7th Cir. 2007), Sherbrooke Turf, Inc. v . Minnesota Department of Transportation, 345 F.3d. 964 (8th Cir. 2003), Western States Paving Co., Inc. v . Washington Department of Transportation, 407 F.3d. 983 (9th Cir. 2005).” (Emphasis added).
76 Fed.Reg. 5083, 5095 ( No. 019, Friday, January 28, 2011) (proposed amendments to 49 C.F.R.
The Establishment of DBE Participation Goals By Recipients of Federal Funds
The regulations in 49 C.F.R. Part 26 define the requirements imposed on State and local recipients of federal transportation funding, as a condition of the receipt of such funding:
- “If you are in one of these categories and let DOT-assisted contracts, you must have a DBE program meeting the requirements of this part:
- All FHWA recipients receiving funds authorized by a statute to which this part applies;
- FTA recipients receiving planning, capital and/or operating assistance who will award prime contracts (excluding transit vehicle purchases) exceeding $ 250,000 in FTA funds in a Federal fiscal year;
- FAA recipients receiving grants for airport planning or development who will award prime contracts exceeding $ 250,000 in FAA funds in a Federal fiscal year.
- You must submit a DBE program conforming to this part by August 31, 1999 to the concerned operating administration (OA). Once the OA has approved your program, the approval counts for all of your DOT-assisted programs (except that goals are reviewed by the particular operating administration that provides funding for your DOT-assisted contracts).
- You do not have to submit regular updates of your DBE programs, as long as you remain in compliance. However, you must submit significant changes in the program for approval.
- You are not eligible to receive DOT financial assistance unless DOT has approved your DBE program and you are in compliance with it and this part. You must continue to carry out your program until all funds from DOT financial assistance have been expended.” (Emphasis added).
49 C.F.R. § 26.21.
The regulations require that the state or local public entity that is the recipient of federal funds perform a study of the prior or historic utilization levels of “disadvantaged” businesses or persons relative to non-disadvantaged persons or businesses on its project, and then establish percentage “goals” for the entity to correct or eliminate any such historic difference or DBE underutilization - or “disadvantage” - on future projects by requiring that its bidders and contractors meet such goals, or make “good faith efforts” to do so.
“DBE”s are certified and regularly re-certified as qualified for this status by the U.S. Department of Transportation and also by state transportation departments, and other local public entities, subject to U.S.D.O.T approval of the certification programs.
The state or local recipient of U.S. Department of Transportation funds is required to ensure that its contractors abide by their DBE commitments, and do not try to circumvent the DBE commitments made in their bids or proposals or contracts.
- "You must implement appropriate mechanisms to ensure compliance with the part's requirements by all program participants (e.g., applying legal and contract remedies available under Federal, state and local law). You must set forth these mechanisms in your DBE program.
- Your DBE program must also include a monitoring and enforcement mechanism to ensure that work committed to DBEs at contract award or subsequently (e.g., as the result of modification to the contract) is actually performed by the DBEs to which the work was committed. This mechanism must include a written certification that you have reviewed contracting records and monitored work sites in your state for this purpose. The monitoring to which this paragraph refers may be conducted in conjunction with monitoring of contract performance for other purposes (e.g., close-out reviews for a contract).
- This mechanism must provide for a running tally of actual DBE attainments (e.g., payments actually made to DBE firms), including a means of comparing these attainments to commitments. In your reports of DBE participation to the Department, you must display both commitments and attainments.” (Emphasis added).
49 C.F.R. § 26.37.
This compliance is effected by incorporating the Federal DBE regulations into the bid documents and the prime contract, either directly or by reference, whereby violation of a general contractor’s DBE commitments in its bid is expressly prohibited by contract, and also perhaps by local statutes, ordinances or regulations as well .
The DBE program is similar to other social and public contract requirements, such as Small Business Enterprise (SBE), Service Disabled Veteran Owned Small Business Enterprises (SDVOSBE) on the Federal side, and the SBE and Disabled Veteran Business Enterprise (DVBE) in California Public Contracting, and Local Business Enterprises (LBE) with local public agencies in California and other states.
The State of California’s own public policies as to the use of minority, Disadvantaged or DBE subcontractors and suppliers on public construction projects in the State - particularly those funded in whole or part by the United States - are embedded in numerous California laws adopted in various legislation over the years, including but not limited to Public Contract Code §§ 2050-2059, 10115(a)(1), 10470-10474, 10500.5, 10501, 10507.7, 10506.4(d), 20229 (as to BART projects), & 20367, among others.
As reflected in some of the above cases, much of the litigation to date over these regulations has been over the Constitutionality of using “goals” to achieve parity of participation by the “disadvantaged” business, because race and sex are the principal means used to determine whether a business is “disadvantaged”.
In general, most of the recent cases have upheld such local participation goals against Equal Protection and other Constitutional challenges.
However, the implementation of these Federal regulations, and the goals established by the state or local public recipient of Federal transportation funds and imposed on their contractors and subcontractors has been and is likely to be a focus of other disputes and litigation in the future, over the operation and enforcement of the DBE requirements.
Agency Approval Required to Substitute or Terminate DBE Subcontractors or Suppliers
Once a contractor has listed a DBE subcontractor or supplier in its bid or contract with the State or local public recipient of Federal Funds, that contractor may not terminate, fire, replace or fail to use that listed DBE subcontractor or supplier unless “good cause” exists to do so, and unless the State or local public agency formally consents to such termination or substitution, after prior written notice to the DBE Subcontractors prior to any adverse action by the contractor.
- You must require that a prime contractor not terminate a DBE subcontractor listed in response to paragraph (b)(2) of this section (or an approved substitute DBE firm) without your prior written consent. This includes, but is not limited to, instances in which a prime contractor seeks to perform work originally designated for a DBE subcontractor with its own forces or those of an affiliate, a non-DBE firm, or with another DBE firm.
- You may provide such written consent only if you agree, for reasons stated in your concurrence document, that the prime contractor has good cause to terminate the DBE firm.
- For purposes of this paragraph, good cause includes the following circumstances:
- You have determined that the listed DBE subcontractor is not a responsible contractor;
- The listed DBE subcontractor voluntarily withdraws from the project and provides to you written notice of its withdrawal;
- The listed DBE is ineligible to receive DBE credit for the type of work required;
- A DBE owner dies or becomes disabled with the result that the listed DBE contractor is unable to complete its work on the contract;
- Other documented good cause that you determine compels the termination of the DBE subcontractor. Provided, that good cause does not exist if the prime contractor seeks to terminate a DBE it relied upon to obtain the contract so that the prime contractor can self-perform the work for which the DBE contractor was engaged or so that the prime contractor can substitute another DBE or non-DBE contractor after contract award .
- Before transmitting to you its request to terminate and/or substitute a DBE subcontractor, the prime contractor must give notice in writing to the DBE subcontractor, with a copy to you, of its intent to request to terminate and/or substitute, and the reason for the request.
- The prime contractor must give the DBE five days to respond to the prime contractor's notice and advise you and the contractor of the reasons, if any, why it objects to the proposed termination of its subcontract and why you should not approve the prime contractor's action. If required in a particular case as a matter of public necessity (e.g., safety), you may provide a response period shorter than five days.
- In addition to post-award terminations, the provisions of this section apply to preaward deletions of or substitutions for DBE firms put forward by offerors in negotiated procurements.”
. . . .
- “When a DBE subcontractor is terminated, or fails to complete its work on the contract for any reason, you must require the prime contractor to make good faith efforts to find another DBE subcontractor to substitute for the original DBE. These good faith efforts shall be directed at finding another DBE to perform at least the same amount of work under the contract as the DBE that was terminated, to the extent needed to meet the contract goal you established for the procurement.” (Emphasis added).
49 C.F.R. § 26.53.
These dismissal or substitution on processes or standards are similar to the process for removing and listed subcontractor on California and other states Public Works Projects. Public Cont. Code ྷྷ 4107(a), 4104.
Requirement That the DBE Perform a “ Commercially Useful Function ”
In addition to terminating or suspending or failing to utilize a listed DBE subcontractor or
supplier to the extent stated in a contractor’s bid without an ageny’s approval, a prime contractor can also violate its contract with the public entity and 49 C.F.R. Part 26 by overly controlling the operations of a DBE, and limiting its ability to operate as a bona fide independent business.
This sometimes happens because some DBE may lack the capacity to perform as needed on a complicated public construction project, due to the listed DBE’s lack of experience, failure to have a competent workforce, lack of the administrative staff needed for a public job, inadequate financial resources, or for other or similar reasons.
In some cases, the prime contractor then supplies the staff and/or workers for the DBE, or otherwise runs or performs the DBE’s scope of work with the prime contractor’s own staff.
In other cases, the prime contractor may feel the DBE is taking away too much of its own profit, resents having to use a DBE at all, and/or tries to limit the DBE’s role or operations on the job - and the amounts it is obligated to pay the DBE - and therefore limits the DBE’s operations (sometimes with the DBE’s invalid express or implicit consent), and thus prevents the DBE from performing its own listed scope of work for those reasons.
For example, in one case the same DBE subcontractor was listed on a number of government projects, but “the subcontracts were found, negotiated, coordinated, performed, managed, and supervised by [the prime contractor’s] personnel. Profits for the jobs flowed through [the listed DBE back to the prime contractors], less a "fixed fee" that was paid to [the DBE]. . . .”
United States v. Nagle , 2013 U.S. Dist. LEXIS 104848, 16 (M.D. Pa. July 26, 2013)
This type of conduct - whether innocent, or as part of a scheme to evade the requirements of 49 C.F.R. Part 26 - create great risks, and potential civil and criminal liabilities, both for prime contractors, and also for complicit or conspiring DBE subcontractors or suppliers as well.
“49 C.F.R. § 26.55 . . . mandates that contractors working on a DBE job . . . submit reports to the [contracting public entity]accurately reflecting the value of the work "actually performed" by a certified DBE subcontractor or the value attributable to work by a certified DBE subcontractor "perform[ing] a commercially useful function."” (Emphasis added)
Donovan v. Dragados, S.A. , 2013 U.S. Dist. LEXIS 92661, 60 (D.N.J. June 28, 2013).
However, for a contractor to legally receive DBE participation credit on a project, the DBE supplier or subcontractor must be performing a “ commercially useful function” on that job, and should not just be acting as a DBE “front man” or “straw man” for a contractor so that the prime can try to claim compliance with the mandated DBE goals.
“If an entity is awarded a subcontract as a DBE, it must perform its own work under its own supervision in order for its services to be counted toward the DBE goal. See 49 C.F.R. § 26.55. In order to preclude the superficial inclusion of a DBE merely "to obtain the appearance of DBE participation," 49 C.F.R. § 26.55(c)(2), funds paid to a DBE contractor count toward the DBE goal "only if the DBE is performing a commercially useful function, " 49 C.F.R. § 26.55(c). The regulations elaborate on this requirement as follows:“A DBE performs a commercially useful function when it is responsible for execution of the work of the contract and iscarrying out its responsibilities by actually performing, 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 . . . ordering the material . . . and paying for the material itself.” (Emphasis added).
United States v. Brothers Constr. Co. (4th Cir. 2000) 219 F.3d 300, 305.“"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 participation." 49 C.F.R. § 26.55(c)(2).” (Emphasis added)
United States v. Maxwell (11th Cir. 2009) 579 F.3d 1282, 1288-1289.
“ A DBE . . . itself must perform, manage, and supervise the subcontract work and must negotiate price, order, install, and pay for the materials used. 49 C.F.R. § 26.55 . A contractor does not receive credit for DBE participation if the relationship between the contractor and the DBE is such that the DBE's "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 participation." 49 C.F.R. § 26.55(c)(2).” (Emphasis added).
United States v. Nagle , 2013 U.S. Dist. LEXIS 104848, 11-12 (M.D. Pa. July 26, 2013)(conviction for mail and wire fraud on others, in violation of 18 U.S.C. §§ 1341, 1343, 1957, 1956(h)).
SBE, SDVOSBE, DVBE and LBE Statutes or regulations also similarly have “commercially useful function” requirements to ensure the effectiveness of those programs, and to avoid fraud and abuse by prime contractors and others.
Possible Liabilities for Failure to Comply With DBE Requirements
Failing to comply with the requirements in 49 C.F.R. Part 26 or contract provisions concerning DBE usage can have serious consequences for both the public agency recipient of
Federal Funds, and for their contractors or subcontractors.“Part E
(a) If you fail to comply with any requirement of this part, you may be subject to formal enforcement action under § 26.103 or § 26.105 or appropriate program sanctions by the concerned operating administration, such as the suspension or termination of Federal funds, or refusal to approve projects, grants or contracts until deficiencies are remedied. Program sanctions may include, in the case of the FHWA program, actions provided for under 23 CFR 1.36; in the case of the FAA program, actions consistent with 49 U.S.C. 47106(d), 47111(d), and 47122; and in the case of the FTA program, any actions permitted under 49 U.S.C. chapter 53 or applicable FTA program requirements.”
49 C.F.R. §26.101.
A private contractor on a federally funded project who made DBE commitments in its bid, proposal, or contract, yet has failed to abide by those commitments while performing and being paid for the work on the project not in accordance with its DBE promises, could be found guilty of a criminal fraud on the government, including, but not limited to, under 18 U.S.C. § 1001, and possibly also mail fraud and wire fraud, etc. See, United States v. Maxwell (11th Cir. 2009) 579 F.3d 1282, 1288 - 1294,1298-1303, 1306; United States v. Brothers Constr. Co. (4th Cir. 2000) 219 F.3d 300, 308-309, 317 -318 . Making false claims or committing fraud on public contracts is also a crime under California Law. Penal Code § 72.
“(e) The Department [of Transportation] may refer to the Department of Justice, for prosecution under 18 U.S.C. 1001 or other applicable provisions of law, any person who makes a false or fraudulent statement in connection with participation of a DBE in any DOT-assisted program or otherwise violates applicable Federal statutes.”
49 C.F.R. § 26.107.
Furthermore, a private contractor who fails to abide by its DBE listing, hiring and utilization commitments in its bid, proposal or contract, but who claimed to do so in the “utilization reports” required to be filed with the contracting public entity, and who applies for or receives payments for work committed to but not performed by legitimate DBE subcontractors or suppliers performing a “commercially useful function”, is also subject to mandatory treble damages and statutory civil penalties under the Federal (31 U.S.C. § 3729 et seq) and California (Gov. Code § 12650 et seq.) False Claims Acts, as each application for payment as to the DBE’s listed work is a false “claim” under those Acts.“ Pursuant to federal regulations and the BART contract, Defendant was required to certify that it had complied with the DOT's Disadvantaged Business Enterprise ("DBE") program relating to the participation of DBEs on the project. (Id.). BART and the DOT worked together throughout the course of the project to monitor Defendant's DBE participation and compliance. (Id.). As part of the program, Defendant was required to submit monthly DBE utilization reports to BART, including in each report the amounts awarded to DBEs as well as the amounts actually paid during each month. (Id. at 6). The numbers in these reports, submitted with Defendant's invoices, were required to be accurate under the BART contract and were forwarded to the DOT to allow the DOT to evaluate nationwide DBE participation. (Id.).” (Emphasis added)
United States ex rel. Laymon v. Bombardier Transp (W.D. Pa. 2009) 656 F. Supp. 2d 540, 542.“ Bombardier's right to payment was conditioned upon its submission of accurate monthly DBE reports regardless of the percentage of the goal attained. (Docket No. 48 at 8; Docket No. 53 at PP 107-110). While Bombardier has not responded to this contention, there is evidence that BART and DOT relied on this information to monitor district-wide and national DBE efforts. (Id.). Had BART and DOT been aware that Bombardier's reports were false, BART could have withheld payment and/or terminated the contract, while DOT could have imposed penalties including banning BART from participation in federal contracts. (Docket No. 53 at P 110).” (Emphasis added)
Laymon v. Bombardier Transp. (Holdings) USA, Inc. , 2009 U.S. Dist. LEXIS 24403, 33 (W.D. Pa. Mar. 23, 2009). See also, United States ex rel. Laymon v. Bombardier Transp. United States (W.D. Pa. 2009) 656 F. Supp. 2d 540; San Francisco Bay Area Rapid Transit Dist. v. Spencer, 2006 U.S. Dist. LEXIS 88022, 48-52 (N.D. Cal. Dec. 5, 2006);San Francisco Bay Area Rapid Transit Dist. v. Spencer, 2007 U.S. Dist. LEXIS 40075, 2-3 (N.D. Cal. May 14, 2007), aff’d, San Francisco Bay Area Rapid Transit Dist. v. Spencer (9th Cir. Cal. 2009) 358 Fed. Appx. 793; Donovan v. Dragados, S.A., 2013 U.S. Dist. LEXIS 92661, 29-30 (D.N.J. June 28, 2013); Ab-Tech Constr. v. United States (Fed. Cl. Ct.1994) 31 Fed. Cl. 429, 434, aff’d. Ab-Tech Const. v. United States (Fed. Cir. 1995) 1995 U.S. App. LEXIS 25757 Southern Cal. Rapid Transit Dist. v. Superior Court (1994) 30 Cal. App. 4th 713, 724.
In addition to these remedies, a local public entity or the United States may have grounds to “debar” or “disbar” or prohibit a contractor from bidding on public works projects in the future if it has engaged in fraudulent or other conduct adverse to the policies or the terms of a public contract. See generally, Niles Freeman Equipment v. Joseph (2008) 161 Cal. App. 4th 765, 781-783; see also 2 C.F.R. Parts 180 & 1200.
DBEs also have similar liabilities if they abuse the program, or commit fraud on the government by failing to meet the DBE requirements, or conspire, or allow themselves to act as a Sham DBE by not actually performing all the work for which they were listed.
Prohibitions on Retaliation Against DBEs and WhistleBlowers
It is also improper for a contractor or anyone else to retaliate against a listed DBE subcontractor or supplier or other persons who has complained about or reported alleged violations of the DBE regulations and requirements to public authorities.“(d) Intimidation and retaliation. If you are a recipient, contractor, or any other participant in the program, you must not intimidate, threaten, coerce, or discriminate against any individual or firm for the purpose of interfering with any right or privilege secured by this part or because the individual or firm has made a complaint, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under this part. If you violate this prohibition, you are in noncompliance with this part.” (Emphasis added)
49 C.F.R. § 26.109.
“The provisions of this section apply to enforcement actions under FHWA and FTA programs:
“(a) Noncompliance complaints. Any person who believes that a recipient has failed to comply with its obligations under this part may file a written complaint with the concerned operating administration's Office of Civil Rights. If you want to file a complaint, you must do so no later than 180 days after the date of the alleged violation or the date on which you learned of a continuing course of conduct in violation of this part. In response to your written request, the Office of Civil Rights may extend the time for filing in the interest of justice, specifying in writing the reason for so doing. The Office of Civil Rights may protect the confidentiality of your identity as provided in § 26.109(b). Complaints under this part are limited to allegations of violation of the provisions of this part.” (Emphasis added)
49 C.F.R. § 26.103.
Actual or potential whistleblowers, whether DBEs or not, are also protected from retaliation or any other adverse actions against them by the contractor under Federal and State False Claims Acts, which create separate causes of action in favor of the whistleblower:
“(h) Relief from retaliatory actions.
(1) In general. Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter [31 USCS §§ 3721 et seq.].
(2) Relief. Relief under paragraph (1) shall include reinstatement with the same seniority status that employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees. An action under this subsection may be brought in the appropriate district court of the United States for the relief provided in this subsection. . . .”
31 USCS § 3730(h).
While these provisions originally applied only to employees who were retaliated against, and most of the case law under this provision deals with retaliation against employees, as amended in 2009 in P.L. 111-21, § 4(d), 123 Stat. 1624, the federal law now applies to contractors and subcontractors and others, including, presumably, listed DBE subcontractors or suppliers who have who have protested such conduct or have reported such actions to a government agency, and then been terminated or otherwise dealt with adversely in violation of the provisions of 49 C.F.R. Part 26 and other law. The California Statute is now the same as the Federal Law, Gov. Code ྷ 12653.CONCLUSION
Bidding on or performing a contract on a public project that is subject to DBE goals and regulatory requirements is not to be taken casually, and special attention must be paid to the DBE requirements in the Bid and Contract Documents, the regulations in 49 C.F.R. Part 26, and the U.S. Department of Transportation’s interpretations of and other materials related to those regulations, which are available online at http://www.dot.gov/osdbu.
Like any other subcontractor or supplier, DBEs must be allowed to function as any other independent business, and must perform a “commercially useful function” on the project.
Thus a contractor cannot perform or take over any of the functions of a DBE business and just nominally use the DBE as a sham or “front man”, simply to try to appear to comply with the DBE regulations and contract requirements and obtain DBE participation/compliance credits.
If the prime contractor is concerned about the ability of the DBE to competently perform the work or as to whether it has the resources to do so, providing legitimate advice, training or financial assistance to DBEs is often acceptable, but taking over their operations, performing portions of their work, or preventing them from independently performing a “commercially useful function” is prohibited.
Not permitting a DBE to perform a “commercially useful function” in this manner is equivalent to the termination or suspension of the DBE as a bona fide DBE subcontractor or supplier on the project, and thus likely cannot be validly done without “good cause” to do so or without prior approval of the contracting authority/project owner.
In most of such cases the contractor would risk multiple and extreme types of liability by claiming DBE participation credit for such nominal or sham DBE subcontractors or suppliers.
Failing to comply with the DBE requirements through these or other schemes can result in Criminal Liability under Federal and California Laws, False Claims and Breach of Contract Liability, disbarment, and other adverse actions against the prime contractor and/or its officers.