DBE Compliance - Commercially Useful Function

Of all the elements in the Disadvantaged Business Enterprise (DBE) program, there is one that can have the most detrimental impact on the ability of the prime contractor to meet its contract goal, as well as the ability of a recipient to meet its overall goal.  

This element is commonly referred to as "commercially useful function" or “CUF”. 

Both the prime contractor and VDOT/local government entity receive credit toward the DBE goal (contract and overall) only when a DBE working on a contract performs a CUF.  

DBEs generally perform work on a contract either as a contractor, a trucker, a regular dealer, or a manufacturer.  While each of these categories is evaluated differently when determining whether the DBE has performed a CUF, there is one guiding principle that must be followed.  

Under the terms established in 49 CFR §26.55, a DBE firm performs a CUF when it is:

"Responsible for execution of the work of the contract or a distinct element of the work . . . by actually performing, managing, and supervising the work involved."

The question contract administrators often face is, “What are the management, supervision and performance actions of a DBE firm that satisfactorily meet this requirement?”  Evaluating these areas will form the basis to render a determination that a DBE has in fact performed a CUF.  

The contract is the one key reference point for any contract administrator and it is essential for this evaluation process. The contract has an effective description of the work to be performed by a DBE and is a legally recognized document.

The USDOT DBE regulations identify the following key factors that should be analyzed when determining whether a CUF is being performed:

  • Evaluation of the amount of work subcontracted, whether it is consistent with normal industry practices
  • Whether the amount the firm is paid under the contract is commensurate with the work that is actually being performed to be credited towards the goal 
  • When the DBE furnishes materials, the DBE must be responsible for negotiating the price, for determining the quality and quantity of the material, ordering the material, and paying for it. As a contractor, a DBE firm would typically be hired to both furnish the material and install it with its own labor force.
  • Whether the DBE’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 DBE participation. In essence, was the role merely a contrived arrangement for the purpose of meeting the DBE contract goal?  
  • In determining whether a DBE is such an extra participant, you must examine similar transactions, particularly those performed by non-DBEs. A DBE must have a necessary and useful role in the transaction, of a kind for which there is a market outside the context of the program. The firm’s role must not be a superfluous step added in an attempt to obtain credit towards the goal. 

In keeping with normal contract requirements, it is the primary responsibility of the prime contractor to ensure that the DBE is performing a CUF. The contracting agency has oversight responsibility to ensure that the prime contractor has effectively met this responsibility under its contract.

VDOT / a local government entity needs to have sufficient field personnel and general headquarters staff to monitor the performance of work performed by DBEs on all federal aid projects, including those of sub-recipients. Contractors, DBEs, local public agencies, and all employees are required to cooperate in carrying out this responsibility. 

The DBE owner must supervise daily operations, either personally, or with a full time, skilled and knowledgeable superintendent, employed by and paid wages by the DBE. The superintendent must be present on the job site and under the DBE owner’s direct supervision.  

The DBE owner must make all operational and managerial decisions for the firm. Mere performance of administrative duties is not considered supervision of daily operations.

Workforce

In order to be considered an independent business, a DBE must keep a regular workforce. DBEs cannot "share" employees with non-DBE contractors, particularly the prime contractor. 

The DBE shall perform its work with employees normally employed by and under the DBE’s control. All work must be performed with a workforce the DBE controls, with a minimum of 30 percent of the work to be performed by the DBE’s regular employees, or those hired by the DBE for the project from a source, such as a labor union.  

The DBE, in all instances, must have direct supervision over all of its employees.

The DBE must be responsible for payroll and labor compliance requirements for all employees performing on the contract and is expected to prepare and finance the payrolls. Direct or indirect payments by any other contractor are not allowed.

The DBE must perform at least 30 percent of the total cost of its contract with its own workforce. The DBE must not subcontract a greater portion of the work than would be expected on the basis of normal industry practice for the type of work involved. 

  • Who does the DBE on-site representative contact for hiring, firing or to modify the contract due to site condition changes or change orders?
  • Asking DBE employees on the job site who they report to and who signs their checks.

 

 

 

Page last modified: March 18, 2015