Criminal indictment is not the only threat to contractors who fail to follow the Department of Transportation’s Disadvantaged Business Enterprise (DBE) regulations. While the risk of jail and civil fines is real, it is limited to those contractors that knowingly violate the DBE rules by engaging in a scheme to use the DBE program to commit fraud. However, even contractors not knowingly engaging in a fraud scheme face a significant risk when they fail to follow the DBE regulations in the form of bid rejections and challenges.
Strict minority set asides or quotas are almost always unconstitutional. Disadvantaged business contracting programs, like the DOT’s DBE program, are not quotas (a fact that DOT underlines in its regulations). Rather, they are goals that contractors must use “good-faith efforts” to achieve. In fact, many contractors would be surprised to know that a State Transportation agency cannot reject a bid because it fails to include a commitment to subcontract work that meets or exceeds the stated DBE goal. However, for its bid to be accepted, the contractor must be able to demonstrate “good faith efforts” in attempting to meet the stated DBE contracting goal.
When contractors fail to meet DBE contracting goals, DBE regulations can collide with public procurement laws that require an award to a contractor that is the lowest responsible and responsive bidder. Failing to document adequate good-faith efforts is grounds for a state transportation agency to reject a bid or for challenge to be filed by a disgruntled bidder on the basis that it is non-responsive. Such was the case in M.K. Weeden Construction, Inc. v. Montana Dept. of Transportation. That case involved bids for a $15 million project to prevent rock slides along Interstate 80. Montana DOT established a 2% DBE participation goal for the project. Plaintiff, M.K. Weeden, was the low bidder but it did not meet the 2% DBE participation goal. Its bid contained only a 1.83% participation goal. Montana DOT rejected Weeden’s bid as non-responsive. Apparently, the only effort that Weeden made to contract with certified DBE’s was a “mass emailing to 158 DBE subcontractors without any follow up.” The MDT administrative appeal board and then the federal district court all agreed with MDT that Weeden failed to show good-faith efforts to meet its hiring goals. Unfortunately for Weeden, it was out of the project and out of pocket for preparing the bid and for challenging the rejection.
Appendix A to Part 26 of the DBE regulations sets forth the types of efforts contractors can show in documenting good-faith efforts. Among those efforts include:
- through all reasonable means, aggressively soliciting DBE’s to perform available work;
- breaking out contract work to increase the likelihood that DBE goals will be achieved;
- subcontracting work to a DBE that a contractor intended to self-perform; and
- negotiating prices with DBE firms.
Clearly mass emailing 158 DBE firms falls woefully short of these efforts. It is unclear if Weeden was aware of what the DOT considered good faith efforts. If it was, perhaps without much additional effort it may have been able to meet its DBE goal or at least document its good faith efforts sufficiently so that it bid would not have been rejected.
Certainly, losing a bid is not as severe as jail time, but few contractors would argue that it a lost bid is painless. Indeed, besides the potential profit on the project that was lost, the cost of bid preparation alone can sometime reach into the several thousands of dollars. Bid challenges – yet another reason to make sure to follow DBE guidelines.