DBE Program Regulations: Contract Goals

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 do recipients determine whether a DBE prime contractor has met a contract goal?

• However, recipients count toward DBE goals the value of work actually performed by DBEs (see 26.55(a)).
• In most cases, this means that a DBE bidder on a prime contract will meet the contract goal by virtue of the work it performs on the prime contract with its own forces.
• For example, suppose DBE Firm X is the apparent low bidder on a prime contract with a 10 percent contract goal. Firm X will perform 30 percent of the work on the contract with its own forces (the minimum possible if a DBE is to perform a commercially useful function, see 26.55(c) (3)). This means that 30 percent of the contract amount counts toward the DBE contract goal. This exceeds the 10 percent contract goal. Therefore, Firm X meets the contract goal. (In this example, the entire 30 percent DBE participation on the contract would be counted as race-neutral participation, since Firm X obtained the contract solely on the basis of its low bid.)
• There could be unusual situations in which a DBE prime contractor would have to provide some additional DBE participation through subcontracting. In the example above, suppose the contract goal is 35 percent instead of 10 percent. Firm X is credited with 30 percent DBE participation on the basis of the work it does with its own forces. This leaves the firm 5 percent short of meeting the contract goal. Firm X would have to seek an additional 5 percent DBE participation through subcontracting with another DBE or document the good faith efforts it made in attempting to secure this additional participation.
• It is appropriate to ask any prime contractor who has met its obligations to continue to make outreach efforts to additional DBEs. However, once a DBE prime contractor has met a contract goal through the work it performs with its own forces, recipients should not require the DBE prime to obtain additional DBE participation through use of DBE subcontractors or to document good faith efforts. DBE prime contractors are required to document good faith efforts only in situations, like those in the previous paragraph, where they do not fully meet contract goals through the work they perform with their own forces.
• When any prime contractor who has met its contract goal obligations provides work to additional DBE subcontractors, the prime contractor is contractually obligated to meet its commitments to those firms. In this case, because the participation of the additional DBE subcontractors is over and above what is needed to meet the goal, the recipient would count it as race-neutral participation.
• When a certified DBE firm bids on a contract that contains a contract goal, the DBE firm is responsible for meeting the goal or making good faith efforts to meet the goal, just like any other bidder.

Do the DBE Program and DBE contract goals apply to change orders in contracts?

• A recipient’s DBE program applies to all its DOT-assisted contracting, including change orders to an existing contract which have more than a minimal impact on the contract amount.
• If there is a change order to a contract on which there is a DBE contract goal, then that contract goal applies to the change order as well as to the original contract. This is true regardless of whether the recipient or the contractor initiates the change order.
• For example, suppose that a recipient awards a $1 million contract to Firm X. The contract goal is 15 percent. Firm X meets the contract goal by obtaining DBE participation from subcontractors or suppliers amounting to $150,000.
• Part way through performance of the contract, the recipient determines that additional work is necessary, and issues a change order that will add $500,000 to the total contract price. The 15 percent contract goal applies to this additional $500,000.
• To meet the contract goal as applied to the change order, Firm X would have to make good faith efforts to obtain an additional $75,000 in DBE participation. It could meet this obligation either by obtaining the additional $75,000 in work by DBE subcontractors or suppliers or by documenting good faith efforts.
• The recipient would determine, on a case-by-case basis, what would constitute good faith efforts in the context of a particular change order. This could include modifying the contract goal amount applicable to the change order if circumstances warrant.
• There may be situations in which a change order has such a minimal effect on the overall contract amount or the expected DBE participation on a contract that it would not be sensible to alter DBE requirements affecting the contract. If a recipient believes that a change order has such a minimal effect, the recipient should contact the relevant DOT operating administration for guidance on whether it is necessary to alter DBE requirements affecting the contract.

If a DBE firm is certified after the execution of a prime contract, are there any circumstances in which its use on the contract can be counted toward DBE goals?

• Section 26.55(f) provides that if “a firm is not currently certified as a DBE…at the time of the execution of the contract, do not count the firm’s participation toward any DBE goals…”
• To receive DBE credit toward meeting a contract goal in the context of the prime contract award process, a DBE firm must be certified before the due date for bids or offers on the prime contract. 49 CFR 26.81(c).
• There may be situations after the award of the prime contract, however, in which it is appropriate to count DBE credit for the use of a DBE subcontractor certified after the prime contract is executed. To be eligible to obtain DBE credit, a DBE subcontractor must be certified before the subcontract on which it is working is executed.
• EXAMPLE 1: A year after the award and execution of the prime contract, the prime contractor hires a certified DBE subcontractor to perform work on the contract beyond the DBE participation to which the prime contractor committed as part of the contract award process. The DBE was certified after the prime contract was executed but before this new subcontract is executed. The DBE’s work should be counted toward the prime contractor’s overall DBE achievements and toward the race-neutral portion of the recipient’s overall goal.
• EXAMPLE 2: As part of the contract award process and in response to a race-conscious contract goal, a prime contractor has committed to the use of DBE Subcontractor X. Halfway through performance of its work on the subcontract, X goes out of business. The prime contractor hires DBE Subcontractor Y to finish the work that was originally committed to X. DBE Y was certified after the execution of the prime contract but before the execution of Y’s subcontract. Y’s participation should be counted toward the prime contractor’s fulfillment of its commitment to meet the contract goal and to the race-conscious portion of the recipient’s overall goal.

What requirements apply to recipients’ use of contract goals?

• The most important regulatory requirements for recipients to consider in making decisions about using contract goals are the following:
• Recipients must meet as much as possible of their overall goals through race-neutral measures (26.51(a)).
• Recipients must project how much of their overall goals they can meet through race- neutral and race-conscious measures, respectively. Recipients must submit this projection and the basis for it to DOT along with their overall goals (26.51(c)).
• Recipients “must establish contract goals to meet any portion of [their] overall goal [they] do not project being able to meet using race-neutral means” (26.51(d)).
• Recipients are not required to set contract goals on every DOT-assisted contract, but must set contract goals that will cumulatively result in meeting any portion of overall goals recipients do not project meeting through the use of race-neutral means (26.51(d)(2)).
• Decisions concerning the use of contract goals must be based on sound analysis. This analysis forms the basis for the projection of the portion of goals the recipient expects to meet through race-neutral or race-conscious means.

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 a contract 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 there 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 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.