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Page 1: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Annual Transportation Construction Law and Regulatory Forum:DBE Compliance and Case Law

June 11, 2014

Jon StrawKraftson Caudle

McLean, Virginiawww.kraftsoncaudle.com

Page 2: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Preview

• Commercially Useful Function• Responsible vs. Responsive in Bid Evaluations• DBE False Claims Act Violations

Page 3: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Commercially Useful Function

Page 4: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Commercially Useful Function

• Services: perform, manage, supervise

• Materials & Supplies: negotiate price, determine quality and quantity, ordering, installing (if applicable), and pay for material.

• 49 C.F.R. 26.55(c)(1).

Page 5: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Hypothetical: Type of Work Omitted

• Bid Form C-111 (VDOT minimum DBE requirements).

• DBE goal = 25%• Lowest bidder DBE performance = 28%• But, type of work not identified for one of three

DBE’s.• So, cannot count that DBE’s percentage.• Upon rebid, DBE’s work was furnishing and

installing only.

Page 6: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Hypothetical: Overconcentration• Unsuccessful, Non-DBE Traffic

Controls Contractor Bidding on State Hwy Job

• Alleged overconcentration of DBEs within traffic controls industry as violation of EP Clause.

• Experts argued differently:– Compare traffic controls industry

to transportation construction industry.

– Compare other contractors in traffic controls industry.

Page 7: Disadvantaged Business Enterprise Law Update

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Responsible vs. Responsive

• Consider whether jurisdiction DBE component of bid submission is judged as responsive or responsible element.– Cf., Virginia, Maryland, Illinois, D.C.

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Hypothetical: Responsible vs. Responsive• Pre-bid goal = 25%• Prime had 7 DBE subs in bid (23%) and GFE.• Owner requested Prime revise DBE submission finding one

sub’s percentage should have been 75% instead of 100%.• Prime revised form and added another DBE sub; Owner did

not object. (25%+ now)• NOIA stated Prime was responsive and responsible.• Prime submitted another form “substituting” a DBE because

removed DBE had not submitted letter of intent. (still 25%+)• Removed DBE sub still would perform other work, just not

listed on form.• Prime argued 49 C.F.R. § 26.53(b)(3).

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• Contractor liable if:– Knowingly does (presents or submits); OR– Knowingly does not do (withholds or non-

verification).• See 31 U.S.C. § 3729

Page 10: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Actual DBE FCA Violations• Manafort

Brothers, Inc. ($2.4M)– Structural Steel– Retaining Walls

Page 11: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Actual DBE FCA Violations• Schuylkill Products, Inc. ($119M + 2 years

prison for executives)

Page 12: Disadvantaged Business Enterprise Law Update

© 2014 Kraftson Caudle. All rights reserved.

Annual Transportation Construction Law and Regulatory Forum:DBE Compliance and Case Law

June 11, 2014

Jon StrawKraftson Caudle

McLean, Virginiawww.kraftsoncaudle.com