DGS Commercially Useful Function for SB & DVBE

Performing a Commercially Useful Function is a critical requirement of doing business with the state. As such, the Office of Small Business and Disabled Veteran Business Enterprise Services (OSDS) is providing the following information that we hope you will find helpful.

Your responsibility as a certified firm to perform a Commercially Useful Function

Each certified Small Business (SB) and Disabled Veteran Business Enterprise (DVBE) program bidding or participating on a state contract in any capacity must perform a Commercially Useful Function (CUF).

Need a refresher on what CUF is? See the FAQs.

Per Government Code Section 14837 and Military and Veterans Code Section 999, each certified SB or DVBE must perform a CUF when bidding/participating on any state contract as a contractor, subcontractor, or supplier of goods and/or services, regardless of the procurement or payment method.

To perform a CUF, an SB and/or DVBE must do all of the following:

• Execute a distinct element of the contract work, including supplying of goods/services.
• Perform, manage, or supervise the work, including supplying of goods/services.
• Perform work that is normal for the firm’s business services and functions.
• Be responsible – with respect to products, inventories, materials and supplies required for the subcontract – for negotiating price, determining quality and quantity, ordering, installing (if applicable), and paying for the material.
• Not subcontract a portion of the work greater than expected by industry practices.

A contractor, subcontractor, or supplier will not be considered to perform a commercially useful function if the contractor’s, subcontractor’s, or supplier’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 small business or microbusiness participation.

CUF does not exist outside of a contract!

Being certified as a SB or DVBE by the DGS Office of Small Business and Disabled Veteran Business Enterprise Services (OSDS) is not an indication that the certified firm performs or has intent to perform a CUF. With the latest revisions of the SB and DVBE regulations effective January 2017, OSDS stopped making determinations of intent to perform a CUF.

• Prior to contract award, all state buyers/contract administrators/contract managers must evaluate and determine whether each of the certified firms bidding/participating on a contract performs a CUF.
• Post-award, contract officials are responsible for monitoring CUF performance during the contract term, particularly while the certified firm performs the work and in case of certified firms substitutions.

Evaluating CUF performance prior to the award

To help with the CUF performance evaluation at the state level, DGS’ Procurement Division, in a joint effort with its Small Business Council members and other state departments, developed and published in December 2015 the following CUF-related sample documents:

• Sample CUF Departmental Policy
• FAQs regarding CUF
• CUF Evaluation and Determination Worksheet
• DVBE Incentive Program Requirements for Goods and Information Technology

Penalties, sanctions and actions

Penalties are applicable to any person who violates the provisions of Government Code Section 14842.5 and/or Military and Veterans Code Section 999.9(a), including SBs, DVBEs, large noncertified businesses, their principals and business affiliates, and state government employees. Sanctions/penalties include:

• Misdemeanor: jail up to six months, and/or up to $1,000 fine.
• Civil penalties:
  • First violation: $10,000 – $30,000
  • Second and subsequent violations: $30,000 – $50,000/each
• Pay all costs incurred by state and attorney’s fees.

DGS has the authority to take the following actions

These are applicable to SBs, DVBEs, large noncertified firms, their principals and any subsequent business formed or financed by, or affiliated with, one or more of those principals, per Military and Veterans Code Section 999.9(c):

• Revoke SB and/or DVBE certification for:
  • First violation: five years
  • Second violation: 10 years
• Suspend firms from doing business with the state three to 10 years. List of suspended firms can be accessed at: http://www.documents.dgs.ca.gov/pd/smallbus/Suspendedlist.pdf
• Refer to Attorney General for civil action.

For more CUF-related information:

• Rules and regulations: California Code of Regulations Sections 1896.15 (Subchapter 8 for SB) and 1896.71 (Subchapter 10.5 for DVBE)
• Authority: Refer to Government Code Section 5 for SBs, and Military and Veterans Code Section 999(b)(5)(B) for DVBEs; searchable at: http://leginfo.legislature.ca.gov/faces/codes.xhtml
• Email OSDSHelp@dgs.ca.govand write CUF in the subject line, or contact OSDS at (916) 375-4950 and ask about CUF.