Disadvantaged Business Enterprise Program (DBE) Fraud & Abuse

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Disadvantaged Business Enterprise Program (DBE) Fraud & Abuse. 2004 AASHTO DBE Fraud Conference Presented By: Charles Klemstine Federal Highway Administration Office of Civil Rights Washington, DC. Counting DBE Participation. Count only the value of the work actually performed by the DBE - PowerPoint PPT Presentation

Transcript of Disadvantaged Business Enterprise Program (DBE) Fraud & Abuse

  • Disadvantaged Business Enterprise Program (DBE) Fraud & Abuse2004 AASHTO DBE Fraud ConferencePresented By: Charles KlemstineFederal Highway AdministrationOffice of Civil RightsWashington, DC

  • Counting DBE ParticipationCount only the value of the work actually performed by the DBEPreamble adds: Actually being performed by DBEs themselvesCount entire amount that is performed by the DBEs own forcesOne exception: Supplies bought by and equipment leased from a prime contractor

  • Commercially Useful FunctionA DBE Firm Must Be Responsible for Execution of a Contract or a Distinct Element of the Work by Actually Performing, Managing, and Supervising the Work Involved.

  • Commercially Useful FunctionDBE Performs a CUF Only When in the Execution of the Work of the Contract its uses its own workforce, equipment and materialDBE Must Be Responsible for Negotiating Price, Determining Quality & Quantity, Paying for & Ordering Material

  • Commercially Useful FunctionDBE Does Not Perform a CUF If Role Is Limited to That of an Extra Participant in a Transaction Through Which Funds Are Passed in Order to Obtain the Appearance of DBE Participation

  • Commercially Useful FunctionCount expenditures to a DBE contractor toward the goal only if DBE performs a commercially useful function (CUF) on that contractTo determine whether a DBE is performing a CUF, you must evaluate the amount of work subcontracted, industry practices, amount to be paid is commensurate with work it is actually performing and to be credited towards the goal

  • Commercially Useful FunctionA DBE is presumed not to be performing a CUF if the DBE does not perform at least 30% of the total cost with its own forces or subcontracts a greater portion of the work than expected on the basis of normal industry practicePreamble clearly states: If such work goes to another firm, it counts only if the other firm is a DBE

  • Commercially Useful FunctionDBE trucker to be certified is only required to have one fully licensed, insured and operational truck. That truck must be used in the contract using drivers it employsDBE may lease from another DBE firm for full creditDBE may use owner operators for credit if certified DBEs

  • Commercially Useful Function

    DBE must be responsible for the management and supervision of the entire trucking operation

    DBE may lease from an established equipment leasing business open to the general public and receive full credit but only if DBE has use of and control over the truck

  • Commercially Useful FunctionDBE leasing and hiring truckers that are non-DBEs receive only fee and commission

    Is this consistent with standard industry practice?Only allows leasing under controlled conditions with varying consequences for crediting

  • Commercially Useful FunctionDBE regular dealers in materials and suppliesOwns, operates or maintains a store, warehouse, or other establishment in which materials and supplies are bought, kept in stock and regularly sold or leased to the public in the usual course of businessAn established, regular business that engages, as its principal business and under its own name, in the purchase and sale of the product in question

  • Commercially Useful FunctionIn bulk items such as petroleum products, steel, cement, gravel, stone, or asphalt the DBE does not need to maintain a place of business as noted in the first bullet if it owns and operates distribution equipmentIf need to supplement equipment, long term lease is required not on an ad hoc basisRegulations allow a DBE to present evidence to rebut this presumption that it failed to perform a CUF. This evidence can rebut this presumption given the type of work involved and normal industry practice

  • Industry Practices: Probability IndicatorsDBEs working in high volume dollar contract items: Structural steelNon-DBE minority owner of the DBE firm involved in other industry related business: Equipment rentalHusband/wife, non-DBE/DBE business in the same line of work: Trucking

  • Industry Practices: Probability IndicatorsExclusive use of one DBE by a prime contractorDBE performing partial bid items: reinforcing SteelReliance on another source for essential equipment needs: Cranes

  • Industry Practices: Probability IndicatorsJoint checks and its application to the DBE ProgramThis practice has become very prevalent in one State1999 rule preamble does not object to practice if commonly recognized way of doing business and if non-DBE acts as guarantor if funds come from DBE

  • QuestionHow does this discussion relate to allegations of fraud and abuse?It is the heart of the non-DBE program culture that all that is being done is not against the rule but just the way the industry operatesIndustry practice is a consideration which cannot be ignored but when in conflict the DBE program requirements; e.g., independence and CUF; prevail

  • Red FlagsManagementEquipmentWorkforceMaterialsPerformance

  • ManagementThe DBE Must Manage the WorkManagement Includes, but Is Not Limited To:Scheduling Work OperationsReceive Quotes & Order Equipment and MaterialsPreparing and Submitting Certified PayrollsHiring and Firing EmployeesMake All Operational and Managerial DecisionsSupervise Daily Operations, Either Personally or With a Full Time, Skilled, and Knowledgeable Superintendent Who Is Under the DBE Owners Direct SupervisionMere Performance of Administrative Duties Is Not Supervision of Daily Operations

  • Management Red FlagsSupervision of DBE Employees by Other ContractorDBE Provides Little or No Supervision of WorkDBEs Superintendent Is Not a Regular EmployeeSupervision Is Performed by Personnel Associated With the Prime Contractor or Any Other Firm or BusinessDBE Firm's Owner Is Not Aware of the Status of the Work or the Performance of the Business Inquiries by Recipient Are Answered by the Prime Contractor

  • EquipmentDBE Firm May Lease Equipment If Consistent With Industry Practices and at Competitive RatesA Lease Agreement Is Required and Should Be on Long Term BasisA DBE Firm May Lease Equipment on an Ad Hoc Basis From Another Contractor, Excluding the Prime Contractor or Affiliate, With Approval of the StateEquipment Leased and Used by the DBE Firm With Payment Deducted From the Prime Contractor's Payment (s) to the DBE Is Not Allowed

  • EquipmentOperation of the Equipment Must Be Subject to the Full Control of the DBEDBE Is Expected to Provide the Operator for Equipment and Responsible for All Payroll and Labor Compliance RequirementsAn Operator May Be Provided If the Equipment Is Specialized, Part of the Lease and Subject to Approval by State

  • Equipment Red FlagsEquipment Used by DBE Firm Belongs to the Prime Contractor or Another Contractor With No Formal Lease AgreementEquipment Signs and Markings Cover Another Owner's Identity, Usually Through the Use of Magnetic SignsA DBE Trucking Business Utilizes Trucks Owned by the Prime Contractor

  • WorkforceDBE Firms Must Keep a Regular WorkforceDBE Firms Cannot "Share" Employees With Non-DBE Contractors, Particularly the Prime Contractor or SubsidiaryDBE Firm Responsible for All Payroll and Labor Compliance Requirements for All Employees Within the Control of the CompanyDirect or Indirect Payments by Any Other Contractor Will Not Be Allowed

  • Workforce Red FlagsMovement of Employees Between ContractorsEmployee Paid by DBE and PrimeEmployee Working for Prime in Morning and DBE in Afternoon

  • MaterialsThe DBE Must Negotiate the Price, Arrange Delivery, Take Ownership and Pay for the Materials and Supplies for the ProjectThe DBE Must Prepare the Estimate, Quantity of Material, and Be Responsible for the Quality of Materials

  • Materials Red FlagsMaterials for the DBE Ordered, or Paid For, by the Prime Contractor2 Party Checks From Prime to DBE Subcontractor and Supplier or Manufacturer, With State Approved ExceptionsMaterials or Supplies Necessary for the DBE Firm's Performance Are Delivered To, Billed to or Paid by Another BusinessA DBE Prime Contractor Only Purchases Materials While Performing Little or No Work

  • PerformanceThe DBE Must Be Responsible for the Performance, Management and Supervision of a Distinct Element of the Work, in Accordance With Normal Industry Practice.

    Exception When Practices Inconsistent With DBE Regulations

    At Least 30% of the Work Must Be Performed by the DBE With Its Own Workforce

  • Performance Red FlagsAgreement Between the Prime and DBE Artificially Inflates the DBE ParticipationAgreement That Erodes the Ownership, Control or Independence of the DBE Subcontractor

  • Performance Red FlagsDBE Works for Only One Prime Contractor or a Large Portion of the Firms Contracts Are With One ContractorThe Volume of Work Is Beyond the Capacity of the DBE Firm