Commercially Useful Function

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Commercially Useful Function DBE Fraud Awareness

• Jeffery Peyton
• Office of Contracts
• Ohio Department of Transportation

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DOTs Top Management Challenges

• The USDOT OIG has identified DBE fraud as one of
  their top priorities.
• Increased oversight of the DBE Program by
  numerous Federal agencies to reduce fraud and
  ensure the DBE Program benefits truly
  disadvantaged businesses.

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Commercially Useful Function

• DBE participation towards the established project
  goal is counted only if the DBE is performing a
  Commercially Useful Function.
• The DBE must carry out its contract
  responsibilities by actually performing,
  managing, and supervising the work they have been
  hired to perform.

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Red Flags

• Management
• Equipment
• Workforce
• Materials
• Performance

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Management Requirements

• Scheduling work operations
• Receive quotes and ordering of all materials
• Preparing and submitting certified payrolls
• Hiring and firing employees
• Make all operational and managerial decisions
• Supervision of daily operations

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Management Red Flags

• DBE employees supervised by another contractor
• DBE provides little or no supervision of work
• DBEs superintendent is not a regular employee
• DBE firm's owner is not aware of the status of
  the work or the performance of the business

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Equipment Requirements

• Equipment lease agreements are required to be
  long term (1 year ) and at competitive rates
• A DBE firm may lease specialized equipment on an
  ad hoc basis from another contractor, excluding
  the prime contractor or subsidiary
• Operation of the equipment must be subject to the
  full control of the DBE, and they are expected to
  provide the operator for that equipment (unless
  specialized)

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EquipmentRed Flags

• Trucks and/or equipment used by DBE firm belong
  to the prime contractor
• Equipment used by the DBE belongs to a another
  contractor with no formal lease agreement
• Equipment signs and markings cover another
  owner's identity, usually through the use of
  magnetic signs

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Workforce Requirements

• DBE firms must keep a regular workforce
• DBE contractors cannot "share" employees with
  non-DBE contractors, especially the prime
  contractor or a subsidiary of the prime
• DBE firm must be responsible for all payroll and
  labor compliance requirements for all employees
  within the control of the company

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WorkforceRed Flags

• Movement of employees between contractors
• Employee paid by both DBE and prime
• Employee working for prime in morning and DBE in
  afternoon

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Materials Requirements

• The DBE must be responsible for
• The ordering of all materials and negotiating
  cost
• Arranging delivery and taking possession of, and
• Paying for all materials and supplies provided
• Materials may not be drop shipped to the project
  by the manufacturer unless it is standard
  industry practice, and written prior approval is
  given to do so.

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MaterialsRed Flags

• Materials for the DBE are ordered and/or paid
  for, by the prime contractor
• Materials for the DBE are delivered to, billed
  to, or paid for by another contractor.
• Standard materials are drop shipped to the
  project by the manufacturer. DBE never takes
  possession of the materials.

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Performance Expectations

• The DBE must be responsible for the performance,
  management and supervision of all work identified
  in their subcontract agreement (C92)

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PerformanceRed Flags

• Work being done jointly by DBE firm and another
  contractor.
• The work to be performed outside of the DBE's
  known experience or capability
• DBE works for only one prime contractor or a
  large portion of the firms contracts are with
  one contractor

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Sanctions

• Immediate suspension of work
• Withholding of project payments from the prime
• Investigation by the U.S. DOT Office of the
  Inspector General and/or the U.S. Attorney
• Revoke DBE certification and/or
  pre-qualification
• Pursue debarment of the DBE firm, prime
  contractor and/or subcontractor.

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Questions?????