Commercially Useful Function & DBE Fraud Awareness

1. Commercially Useful Function & DBE Fraud Awareness Jeffery Peyton Office of Contracts Ohio Department of Transportation

2. DOT’s 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.

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

4. Red Flags • Management • Equipment • Workforce • Materials • Performance

5. 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

6. Management Red Flags • DBE employees supervised by another contractor • DBE provides little or no supervision of work • DBE’s 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

7. 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)

8. 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

12. 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

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

14. 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.

15. 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.

16. Performance Expectations • The DBE must be responsible for the performance, managementandsupervisionof all work identified in their subcontract agreement (C92)

17. 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 firm’s contracts are with one contractor

18. 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.

19. Questions?????