DBE Program Regulations: Counting DBE Participation

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.

What types of contracts can be counted toward DBE goals? (Section 26.3(a), 26.55)

• DBE participation can be counted toward goals for any contract let by the recipient in which Federal funds listed in 26.3(a) participate.
• If a recipient lets a contract to any type of contractor, and Federal funds listed in 26.3 participate in that contract, then the DBE’s participation would count toward the recipient’s DBE goals.
• Part 26 does not limit the type of contractors who can participate in the DBE program or the types of contracts appropriate for DBE participation. All DOT-assisted contracts, whether construction or non-construction (e.g., professional services, consulting, supplies) can be used for DBE participation.
• Recipients should be aware that there may be some types of contracts that are not eligible for the Federal assistance specified in 26.3 (e.g., contracts supporting transit operations for some FTA recipients). Participation by DBEs in such contracts does not count toward goals in the DBE program. Recipients should contact the concerned operating administration for further information about DBE participation in a particular contract or type of contract.

What should a recipient do in the case of a DBE manufacturer who, partway through a multi-year contract, becomes a broker?

• Under part 26 counting rules, 100 percent of the cost of the goods provided by a DBE manufacturer counts toward DBE goals. For “brokers,” only the DBE’s fee or commission, and no part of the cost of the goods, count toward DBE goals.
• Suppose that a prime contractor relied on goods from a DBE manufacturer to meet a portion of its contract goal. Halfway through the contract, the DBE ceases manufacturing the goods and begins to act as a broker who procures the goods from a non-DBE manufacturer and passes them on to the prime contractor. (For purposes of this hypothetical, we will assume that the DBE is not acting as a regular dealer.)
• From the point where the DBE’s role changed from that of a manufacturer to that of a broker, DBE credit that the recipient and prime contractor can claim is much reduced, since only its fees or commissions, rather than 100 percent of the cost of the goods, could count from that point forward.
• This places the recipient and contractor in a position analogous to the situation where a DBE is decertified or drops out of the contract.
• The recipient cannot count the “lost” DBE participation toward its overall goal.
• The prime contractor would make good faith efforts to obtain DBE participation to make up for the “lost” participation from the former manufacturer, to the extent needed to continue meeting the contract goal (see 26.53(f)(2)).

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); 26.81(c))

• 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 options do recipients have for counting the participation of DBE trucking companies?? Section 26.55(d)(3)-(5)

• 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).
• The first option is to count only the value of transportation services provided by a DBE trucking company itself, using trucks it owns, insures and operates, and using drivers it employs. As part of this first option, the DBE trucking firm can count the participation of other trucks leased from another certified DBE firm.
• In this option, if the DBE firm leases trucks from a non-DBE firm, it can count only fees or commissions it receives for arranging the participation of the non-DBE firm. No DBE credit can be awarded for the actual transportation services provided by the non-DBE firm and its trucks.
• The second option permits limited DBE credit to be obtained for the use of trucks leased from non-DBE sources. This option permits counting of credit for the use of non-DBE trucks not to exceed the value of transportation services on the contract provided by DBE trucks.
• The following example, from section 26.55(d)(5) of the DBE rule, illustrates how this second option works: DBE Firm X uses two of its own trucks on a contract. It leases two trucks from DBE Firm Y and six trucks from non-DBE Firm Z. DBE credit would be awarded for the total value of transportation services provided by Firm X and Firm Y, and may also be awarded for the total value of transportation services provided by four of the six trucks provided by Firm Z. In all, full credit would be allowed for the participation of eight trucks. With respect to the other two trucks provided by Firm Z, DBE credit could be awarded only for the fees or commissions pertaining to those trucks Firm X receives as a result of the lease with Firm Z.
• A recipient can choose either of these options. If it chooses the second option, the recipient must obtain the written consent of the appropriate DOT operating administration (e.g., the Federal Highway Administration for a state highway agency) before implementing that option. Whatever option a recipient chooses should be clearly stated in its DBE program.

Can a recipient count DBE participation for a firm toward contract and overall goals if the firm has not been certified to perform the particular type of work that it intends to perform on a given contract? Section 26.53(a); 26.71(n); 26.81(c)

• Under Part 26, DBE firms are not certified in general terms, in a way that makes them eligible to perform any sort of work. Rather, under 49 CFR 26.71(n), a recipient or UCP must grant certification to a firm only for specific types of work in which the socially and economically disadvantaged owners have the ability to control the firm.
• To be certified in an additional type of work, the owners of the firm must demonstrate to the certifying agency that they can control the firm with respect to the type of work involved. See also Q&A entitled “IF A FIRM IS CERTIFIED AS A DBE OR ACDBE IN ONE TYPE OF BUSINESS, UNDER WHAT CIRCUMSTANCES CAN IT BE CERTIFIED FOR ANOTHER TYPE OF BUSINESS?” (Posted 6/18/08) Under 49 CFR 26.71(n), if a DBE firm would like to be certified in “additional work,” the firm needs to demonstrate that its socially and economically disadvantaged owners are able to control the firm regarding the type of work. The firm does not need to submit a new certification application.
• The DBE rule requires all certification actions, including those expanding the types of work a firm is authorized to perform as a DBE, to be made final before the date on which bidders or offerors on a prime contract must respond to a solicitation. See 49 CFR 26.81(c). The rule refers to such timely certification actions as “pre-certifications.”
• If a DBE firm has not been certified in a timely manner for the type of work it is intending to perform on a given contract, then recipients cannot count the firm’s participation on that contract toward DBE contract or overall goals.
• If a bidder/offeror has submitted a bid or proposal with DBE participation in response to a contract goal, and the DBE firm named in the bid/offer documents has not been certified in the type of work that the DBE firm would perform on the contract, then the bid/offer must not be considered because it does not qualify as a responsible or responsive bid.
• EXAMPLE: Acme Corporation bids on a highway construction contract being let by the Sagebrush State Highway Administration (SSHA). The contract has a 5 percent DBE contract goal. Acme proposes that the W.E. Coyote Company (WEC) will meet the goal by performing a subcontract to provide mitigation measures for the effects of the project on a protected bird species. WEC is a certified DBE in the field of traffic control, but is not certified by the Sagebrush UCP in wildlife impact mitigation. SSHA cannot count WEC’s proposed work toward the DBE goal for the contract. Unless it has obtained 5 percent DBE participation from other sources, Acme has failed to meet the goal.
• A bidder/offeror is deemed to have made a good faith effort to meet a contract goal if it: (1) documents that it has obtained enough DBE participation to meet the goal; or (2) documents that it made adequate good faith efforts to meet the goal even though it did not succeed in obtaining enough DBE participation to meet the goal. 49 CFR 26.53(a). Recipients have an obligation to make sure all information is complete and accurate (e.g., all needed DBE certifications have been timely completed) and adequately documents the bidder/offeror’s good faith efforts before committing itself to the performance of the contract by the bidder/offeror. 49 CFR § 26.53(c).
• In the above example, SSHA would deem the Acme bid/offer as non-responsive for failing to meet the DBE contract goal of 5 percent unless it has obtained 5 percent DBE participation from other sources. Acme could not document good faith efforts under 49
  CFR 26.53(a)(2) on the basis of a sincere but mistaken belief that WEC was certified to do the work proposed for the contract.
• If the bidder/offer or has neither met the goal nor documented good faith efforts, the bid/offer MUST be excluded from consideration as non-responsive or non-responsible. Under 49 CFR 26.53(a) when there is a contract goal, the recipient “must award the contract only to a bidder/offer or who makes good faith efforts to meet it” (emphasis added) in one of the two ways provided by the regulation. Were a recipient to award a contract despite this prohibition, it would be in noncompliance with 49 CFR Part 26. Federal funds cannot participate in a contract awarded in violation of Part 26. While recipients necessarily make determinations concerning whether a bidder/offeror has met the goal or made good faith efforts, the Department of Transportation retains the authority and responsibility to determine whether, with respect to such determinations, the recipient has acted consistently with the regulation.
• Any evidence related to fraud in the DBE program will be referred to DOT’s Office of Inspector