DBE Program Regulations: Good Faith Efforts Requirements

DOT has released Official FAQs on DBE Program Regulations. These questions and answers provide guidance and information for compliance with the provisions under 49 CFR part 26. Like all guidance material, these questions and answers are not, in themselves, legally binding or mandatory, and do not constitute regulations.

Should recipients treat as evidence of good faith efforts to meet contract goals the proposed use of potential DBE firms that are not certified in the recipient’s state? Section 26.53(b) (2) (vi); Appendix A

• As background, bidders or offerors on prime contracts may, on some occasions, propose the use on a contract of minority- or women-owned firms that are not currently certified in the recipient’s state. In some cases, such firms might be certified as DBEs in other states.
• Good faith efforts are efforts to obtain participation by certified DBEs on the contract. Efforts to include firms not certified as DBEs in the state where the contract is being let are consequently not good faith efforts to meet a DBE contract goal. This is true even if a non-certified firm is owned by minorities or women or is certified in another state.
• We would point out, however, that it is appropriate for recipients to take potential DBEs into account when calculating overall goals.

May a recipient consider a bidder’s “track record” in using DBEs as it evaluates the firm’s good faith efforts? Section 26.53 Appendix A

• The factors cited in Appendix A, section IV, concerning good faith efforts are not an exclusive list of the things a recipient may consider in determining whether a bidder has made good faith efforts on a contract.
• It is permissible for a recipient, in evaluating the good faith of a bidder’s efforts to meet a contract goal, to look at the “track record” of the firm in using DBEs in other situations.
• For example, suppose that Contractor X has a long, documented history of making good, and frequent, use of DBEs not only on DOT-assisted contracts but on non-Federally- assisted contracts as well. Contractor Y does not have such a positive track record.
• In evaluating the efforts Contractor X has made to meet a particular contract goal, a recipient might conclude that the credibility of its efforts is improved by its history of DBE utilization.
• In a similar situation, the recipient might decide that the less positive history of DBE utilization by Contractor Y did not provide the same degree of credibility of its efforts to meet the goal.

Do recipients apply post-award good faith efforts requirements to contracts on which there is no contract goal? Section 26.53(f)

• The post-award good faith efforts requirements of 26.53(f) apply only to contracts in which there is a contract goal.
• These requirements (1) prohibit prime contractors from terminating a DBE for convenience and then substituting the prime contractor’s own forces, and (2) require the prime contractor to make good faith efforts to replace a DBE firm that could not complete its contract with another DBE firm, to the extent needed to meet the contract goal.
• These provisions are premised on their having been a contract goal that the prime contractor has committed itself to make good faith efforts to meet. When there is a contract goal, the provisions of Section 26.53(f) are necessary to prevent a prime contractor from circumventing its good faith efforts obligation after the contract has been awarded.
• Where there is no contract goal (i.e., a race-neutral procurement), these provisions are not relevant.

May a prime contractor use the union or non-union status of a DBE firm as a good-faith reason for not selecting the firm to work on a contact or as good cause to terminate the firm from a contract? Section 26.53 (f); Appendix A (IV) (E)

• When a bidder or offer or on a prime contract is unable to meet a DBE contract goal, the bidder must, in order to be responsive or responsible, document the good faith efforts it made to meet the goal. The nature and scope of these efforts are explained in Appendix A to 49 CFR Part 26.
• The DBE rule provides that “The contractor’s standing within the industry, membership in specific groups, organizations, or associations and political and social affiliations (for example, union vs. non- union employee status) are not legitimate causes for the rejection or non-solicitation of bids in the contractor’s efforts to meet the project goal.”
• This means that the bidder or offer or cannot successfully document good faith efforts if it has declined to use a DBE firm because that firm is a union or non-union firm.
• The terms of an applicable project labor agreement or collective bargaining agreement applying to a prime contract may mandate that all firms working on the contract observe stated wage or working conditions requirements, regardless of whether the firms are union or non-union firms. In a situation of this kind, a bidder or offer or on the prime contract is not obligated, as a condition of meeting good faith efforts requirements, to use a DBE firm that will not observe the stated requirements.
• A prime contractor is prohibited from terminating a DBE subcontractor it has listed to meet a contract goal without the written consent of the recipient agency. The DBE Liaison Officer (DBELO) is the most appropriate official to determine whether consent for a termination should be provided. Such a termination can only be for good cause.
• The DBE regulation lists eight specific circumstances that constitute good cause, none of which provide that union or non-union status is good cause to terminate a DBE firm. The ninth basis for a good cause termination is “other documented good cause that you [the recipient] determine compels the termination of the DBE subcontractor.”
• The Department interprets this ninth ground for a good cause termination as not including the union or non-union status of the DBE firm. For example, if a prime contractor lists a non-union DBE subcontractor to work on a contract, and a union objects to or takes action against the prime contractor’s use of the DBE firm, the recipient does not have a basis for consenting to the termination of the DBE firm by the prime contractor.

What, and how much, assistance is it appropriate for a prime contractor to provide to a DBE?

• A DBE must be independent to be eligible for certification. In thinking about the assistance that prime contractors may properly provide to DBEs, recipients should determine whether there is a pattern of close, pervasive ties between a DBE and the prime contractor. If it appears that, absent its ties to a prime contractor, a DBE firm is not viable; it should not be regarded as independent. A firm must be independent to be eligible for DBE certification.
• In Appendix A, the Department mentions that it is appropriate for prime contractors to provide assistance to DBEs in a variety of areas, such as bonding, credit, insurance, equipment, materials and supplies.
• In providing such assistance, a prime contractor should be careful not to provide so much assistance to a particular DBE in so many areas that a reasonable recipient or UCP would conclude that the DBE is not viable without the relationship to the prime contractor. It makes sense for a prime contractor to pick and choose ways of assisting a DBE that do not become so pervasive as to create independence issues. This assistance should be transparent and arms-length.
• As part of their contract performance oversight functions, recipients should continue to scrutinize the independence of DBEs as they work on projects. Recipients may require prime and subcontractors to report any contract performance issues that could call a DBE’s independence into question.
• One situation that has been brought to the Department’s attention concerns the use of cranes. Often, according to stakeholders, a crane provided by a prime contractor may be used jointly on a project by the prime contractor and subcontractors, including DBEs, as it is not practical or economically feasible for each contractor to have its own crane.
• In this situation, the Department believes that, as long as such arrangements are consistent with normal industry practice in a given jurisdiction, the joint use of a prime contractor’s crane by a DBE should not cause the DBE to be regarded as failing to meet independence requirements for certification.
• We note, however, that as provided in 26.55(a) (1), the cost of equipment purchased or leased by a DBE from a prime contractor does not count for DBE credit. Consequently, if a charge for the use of a prime contractor’s crane (as distinct from the DBE’s labor in operating the crane) is part of the cost OF THE DBE’s contract, it would be subtracted from the DBE credit allowed for the contract.
• There may be occasional short-term or emergency circumstances in which a DBE uses a prime contractor’s equipment, supplies, etc. to a limited degree (e.g., the DBE’s backhoe breaks down, and the DBE uses the prime contractor’s backhoe for the rest of the day). Such short-term, limited use, as distinct from a pattern or practice of such use, would not usually result in a DBE being regarded as having lost the independence needed for certification and would not result in a subtraction from the DBE credit allowed for the DBE’s work on the contract.
• It is possible that a group of prime contractors, or a state or local prime contractors association, could join efforts to provide various kinds of assistance to a considerable number of DBEs in the jurisdiction in a way that would not create a dependent relationship between any given DBE and a particular prime contractor.
• Prime contractors with questions about the appropriateness of their assistance relationships with DBEs should consult in advance with recipients or the state’s UCP, who should be prepared to provide advice about whether the relationship or some aspects of it may be problematic. If a recipient provides an opinion about the appropriateness of a relationship, the recipient should make clear that, even if the relationship appears appropriate on its face, dealings between the prime contractor and the DBE during the implementation of the contract could still run contrary to the independence requirements of the DBE rule.
• Mentor-protégé programs meeting the requirements of 26.35, which contain safeguards for the independence of DBE protégés, are another method through which prime contractors can assist DBEs without creating independence issues. Note that only a firm that the recipient has already certified as a DBE (necessarily including a determination that the firm is independent) can participate as a protégé.