DBE Compliance
Remains a Key Compliance Focus
Background –
A joint venture (JV) between an international
civil engineering/construction company and a large public
works contractor highlights the compliance challenges of
the U.S. Department of Transportation’s Disadvantaged
Business Enterprise (DBE) Program.
Issue –
The U.S. attorney sued the JV for fraud on a
Metropolitan Transportation Authority (MTA) project. The
contractors claimed they would make good-faith efforts
to hire DBE subcontractors. The JV listed four DBEs as
subcontractors. Of the $22 million that was slated to be
paid to the DBEs between 2006-2008, three of the DBEs
received fees to act as “pass-throughs” while non-DBE
subcontractors performed the work. The problems with
the DBEs were discovered by one of the members of the JV
as part of its internal integrity processes and procedures,
and the fraud was self-reported to the MTA.
Result –
The U.S. initiated a civil investigation with the full
cooperation of the JV member and an agreement was settled
out of court for $7.5 million. Damages could have been
significantly higher if the JV did not self-report the violation.
Prime Contractors Face Real Risk
Related to Subcontractor Arrangements
Background –
A private water/utility construction
company and its trucking subcontractor were investigated
by the Broward OIG in Broward County, FL, for violations
of the County Business Enterprise (CBE) program,
highlighting the challenges of managing subcontractors
and complying with local government regulations in
addition to federal and state requirements.
Issue –
The investigation alleged that the subcontractor
was submitting false payment reports to Broward County’s
Office of Economic and Small Business Development
(OESBD) on a water and wastewater project. The contract
required the prime contractor to ensure 15% CBE
participation, and the prime contractor submitted reports
representing that an assigned certified CBE had been paid
for the work.
However, the trucking subcontractor performed the
work that should have gone to the CBE. The trucking
subcontractor wanted the certified CBE to endorse the
check and pass through the payment to it as well as
falsely represent to the OESBD that it had performed the
work. The certified CBE declined. Subsequently, the prime
contractor received approval from the OESBD to replace it
with another CBE. The second CBE accepted full payment
for work it did not perform and forwarded nearly all of
those funds to the trucking subcontractor.
Result –
The investigation revealed that the owners of the
second CBE contractor and the trucking subcontractor are
brothers and it was determined that the prime contractor
consented to the arrangement. Damages are forthcoming.
Example Takeaways
These three examples highlight several points:
• Specific areas of compliance focus are Minority Business
Enterprise, Women’s Business Enterprise, and DBE
compliance; prevailing wage compliance; prompt
payment; the False Claims Act; and the whistleblower
hotline. If compliance efforts are lackluster or are not
made, then fines, suspensions/debarments and even
prosecution are possible.
• Bid rigging, kickbacks, overtime billing schemes and
DBE/CBE fraud may be deterred or discovered earlier
with the appropriate compliance programs in place,
including periodic monitoring and auditing procedures
performed by or for a chief compliance officer.
• Contractors that discuss problems with their contracting
officers early, have adopted the compliance requirements
outlined in FAR, and show they are responsible (e.g.,
present a detailed plan to avoid additional problems) may
receive some degree of leniency.
It’s Not Too Late to
Implement a FAR Compliance Program
In today’s environment, it’s time for all contractors to build a
compliance program. Start by addressing the following five areas.
Set the Proper Tone at the Top
An effective compliance program requires the highest
levels of management to demonstrate a commitment to
ethical conduct. This should include a written code of ethics
that is distributed to all employees and, once reviewed,
accompanied by a signed acknowledgement.
However, simply possessing such a document is insufficient;
management must also update the code of ethics regularly
and ensure that it is comprehensive and relevant. More
Building Washington 23
