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.
How should recipients evaluate the commercially useful function performed by DBE contractors performing “furnish and install” contracts? Section 26.55(c)
- Section 26.55 (c)(1) provides that “[t]o provide a commercially useful function, the DBE must . . . be responsible, with respect to materials and supplies used on a contract, for negotiating price, determining quality and quantity, ordering the material, and installing . . . and paying for the material itself.” This section instructs recipients to “evaluate the amount of work subcontracted, industry practices, whether the amount the firm is to be paid is commensurate with the work it is actually performing and the DBE credit claimed for the performance of the work, and other relevant factors.”
- Section 26.55(c)(2) adds that a DBE does not perform a commercially useful function (CUF) “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. In determining whether a DBE is such an extra participant, you [i.e., the recipient] must examine similar transactions, particularly those in which DBEs do not participate.”
- In a “furnish and install” contract, a DBE subcontractor obtains the materials to be used for a project and then installs the material. In determining whether the DBE performs a CUF, it is appropriate for a recipient to look separately at the work of the DBE in obtaining the materials and installing them.
- With respect to installation, the DBE performs a CUF if it does the work of installation with its own forces. As section 26.55(c)(1) notes, the firm must be paid commensurate with the work it is actually performing and the amount of DBE credit claimed for its performance. If a firm meets these requirements, it can receive DBE credit for performing a CUF with respect to installation, regardless of whether it has also performed a CUF with respect to furnishing the materials it has installed.
- With respect to obtaining materials, the DBE must, in order to receive DBE credit, perform all four functions identified in section 26.55(c)(1). These are (1) negotiating price; (2) determining quality and quantity; (3) ordering the material; and (4) paying for the material itself. If the DBE does not perform all of these functions, it has not performed a CUF with respect to obtaining the materials, and the cost of the materials could not be counted toward DBE goals.
- While section 26.55(c)(1) also tells recipients to consider industry practices, this language does not overrule the requirement that a DBE “must” perform the four enumerated functions.
- The Department understands that there may be some kinds of transactions in which no subcontractor performs one of the four required functions (e.g., a prime contractor decides who will supply a commodity and at what price, with the result that a subcontractor cannot negotiate the price for the item). In such situations, the way the transaction occurs does not lend itself to the performance of a CUF by a DBE subcontractor, and it is not appropriate to award DBE credit for the acquisition of the commodity by the DBE subcontractor. All the DBE has done with respect to acquiring the commodity is to carry out, in a ministerial manner, a decision made by the prime contractor.
- Recipients should communicate with DBEs and non-DBE contractors to avoid unrealistic expectations of the credit that can be awarded in a particular type of transaction.
How does the part 26 requirement that a DBE firm must do 30 percent of the work of a contract with its own forces to perform a commercially useful function relate to some recipients’ requirements that all firms perform a greater percentage (e.g., 50 percent) of the work on all contracts? Section 26.55(c)(3)
- A requirement that all firms perform at least 50 percent of the work of a contract with their own forces is a matter of recipient procurement policy that does not conflict with the dot DBE rules.
- For a recipient who has such a requirement, all contractors will necessarily perform more than 30 percent of the work of their contracts with their own forces.
- Consequently, all DBE firms subject to this requirement will automatically meet the 30 percent requirement for performing a commercially useful function, since they have to be performing more than that amount of work with their own forces to get a contract in the first place.
May a recipient require that a DBE trucking firm own more than one truck in order to be regarded as performing a commercially useful function? section 26.55(d), 26.73(a)(1)
- Section 26.55(d) provides that, to be regarded as performing a commercially useful function, a DBE trucking company must own at least one truck of its own (which is insured and operable). Consequently, it would be inconsistent with part 26 for a recipient to require DBE trucking companies to own two or more trucks in order to be regarded as performing a commercially useful function.
- This issue, like all issues involving the “commercially useful function” concept, focuses solely on counting DBE participation toward goals, and does not enter into certification decisions (see 26.73(a)(1)).