• MassDOT Amends Its DBE Special Provisions
  • January 23, 2014 | Author: Scott A. McQuilkin
  • Law Firm: Hinckley, Allen & Snyder LLP - Boston Office
  • Effective July 2013, the Massachusetts Department of Transportation (“MassDOT”) amended several sections of its Special Provisions regarding Minority/Disadvantaged Business Enterprise (“DBE”) requirements. Although contractors should know the amendments in their entirety, three of the more significant changes concern (1) issuing joint checks to DBEs; (2) the prompt payment requirements; and (3) the procedure for terminating DBEs. As most public contractors know, DBE violations - even seemingly innocent ones made in good faith - are not taken lightly by state and federal awarding authorities, who are under increased political pressure to escalate their DBE enforcement efforts. Violating the requirements in any of these three areas could lead to sanctions or other financial or exclusionary penalties.

    Issuing Joint Checks to DBEs

    The amended DBE Special Provisions now allow general contractors to issue joint checks to DBEs. Although using joint checks may make it easier for general contractors to comply with DBE requirements, MassDOT has established procedures that general contractors must follow. Before deciding whether to allow the joint checks, MassDOT will consider a list of specific factors.

    The procedures and factors are designed to ensure the DBE is performing a “commercially useful function” (“CUF”) - i.e., that the DBE is primarily responsible for performing, managing, and supervising its scope of work [1]. The required procedures comprise the following:

    • The DBE must advise the general contractor that the DBE needs the general contractor to use a joint check arrangement, and the DBE must provide proof of the need.

    • The general contractor must then submit a request for approval of a joint check arrangement to MassDOT using MassDOT’s “Joint Check Request Form” and a “DBE Letter of Intent.”

    • MassDOT would then review the request and, if MassDOT approves the request, it would monitor the arrangement closely throughout the project. MassDOT may request copies of cancelled checks (front and back) and other information to verify any payments made to the DBE and the vendor or supplier. MassDOT also may request other information or documents to ascertain whether the DBE is performing a CUF.

    • Payments must be made in the name of both the DBE and the vendor or supplier. Payments should be issued and signed by the general contractor as only the guarantor for prompt payment. The payment to the vendor or supplier should be handled by the DBE.

    Assuming the general contractor follows the required procedures, the factors that MassDOT considers in determining whether to approve a joint check arrangement include the following:

    • Whether using joint checks is required as “standard industry practice” that applies to DBEs and non-DBEs for the type of vendor requiring a joint check, or whether the vendor on the project is requiring joint checks.

    • Whether payment would be delayed for an unreasonable amount of time without joint checks.

    • Whether the general contractor requires the DBE to use a specific vendor or supplier to meet its subcontractor specifications.

    • Whether the DBE or any of its subcontractors has a history of not paying a vendor within a reasonable time, or has not established a sufficient credit history with the vendor. The DBE must show it has tried to establish alternate arrangements.

    This is only a partial list. A complete list of the factors considered by MassDOT is in Section 6(c) of the Special Provisions.

    Prompt Payment Provisions

    Contractors should also know their obligations under Special Provision Section 8(n) to promptly pay and release retainage to DBEs. Section 8(n) requires general contractors to pay all subcontractors, including DBEs, “within ten (10) business days from the receipt of each payment the [general contractor] receives from MassDOT.” This section also requires general contractors to pay all subcontractors in full, including retainage, within ten (10) business days after the subcontractor has completed all of the work required under its subcontract.

    Contractors should be mindful that the timing of final payment and retainage to subcontractors is tied to the subcontractors’ completion of work, rather than the general contractor’s receipt of payment from MassDOT.

    General contractors who do not comply with this provision may face sanctions, including the withholding of payments from MassDOT until the subcontractor has received all payments due, and referral to the Prequalification Committee for action that may affect the general contractor’s qualification status for bidding on future projects.

    Termination of DBEs

    The amended Special Provisions also detail the steps that general contractors must take before terminating a DBE. The three main prerequisites for termination are:

    • Providing the DBE with written notice of the general contractor’s intent to terminate the DBE, and giving the DBE five days to respond to the notice by sending a response/objection to both the general contractor and MassDOT;

    • Obtaining the prior written consent of MassDOT to terminate the DBE (which is required even if the DBE is to be replaced by another DBE); and

    • Having “good cause” for the termination.

    Examples of “good cause” to terminate a DBE include refusal by the DBE to execute a subcontract, failure to perform work consistently within normal industry standards, and the ineligibility of the DBE to receive DBE credit for the work required on the project. A full list of MassDOT’s examples of “good cause” is in Section 8(m) of the Special Provisions.

    If the general contractor fails to follow the proper steps for termination, it could be subject to the wide range of sanctions listed in Section 9 of the Special Provisions, including suspension or termination of the contract and modification or revocation of prequalification status.

    Conclusion

    General contractors should familiarize themselves with the amended DBE Special Provisions, to ensure compliance with the Provisions and to avoid the risk of unknowingly violating them.

    [1] What constitutes a legitimate CUF is itself unclear and prone to legal challenge. Compliance with CUF requirements is outside the scope of this article, but contractors should consult counsel regarding any concerns over CUF compliance.