(Note: My DBE related blog post are always among the most read. When I recently asked folks for help coming up with a future blog post topic, DBE “regular dealer” issues was a near unanimous response.)
Under the Department of Transportation (“DOT”) DBE regulations, contractors can only count the value of the work actually performed by a DBE towards the contractor’s DBE goals. This is usually not a problem when the DBE is performing actual construction of a component of the improvement. However, a problem arises when using DBE material suppliers to meet DBE contracting goals.
Under DOT DBE regulations, contractors can count 60% of the value of supplies and materials purchased from a DBE supplier only if that DBE supplier is a regular dealer. The regulations define “regular dealers” as: “a firm that owns, operates, or maintains a store, warehouse, or other establishment in which the materials, supplies, articles or equipment of the general character described by the specifications and required under the contract are bought, kept in stock, and regularly sold or leased to the public in the usual course of business.”
However, this definition that appears in the DOT DBE regulations, which are binding legal regulations, leaves open several questions. Must a DBE regular dealer physically have the item in stock in order for its value to be counted? Can a DBE regular dealer “drop ship” specialty products?
In 2011, the DOT Office of General Counsel attempted to answer these and other related questions concerning DBE “regular dealers” when it published a “Q&A” that attempted to address these issues. The DOT periodically publishes Q&A’s concerning questions and issues that are raised by the public. Although they are not legally binding regulations, they do represent the represent DOT’s institutional position.
In short, the DOT’s Q&A on regular dealers suggests that there are very few circumstances, except for being out of stock, where a contractor can be given credit for the value of materials that a DBE supplier must order for the contractor. Moreover, the DOT ruled out drop shipments as being counted towards DBE goals.
Why is this important? First, it impacts you bid and subjects your bid to attack from both the contracting agency and a disgruntled bidder. While an agency cannot reject your bid per se for failing to meet stated DBE goals, it can reject it if you cannot demonstrate your “good-faith” efforts – as defined in the regulations – to meet the stated goal. Furthermore, if you have used DBE suppliers to meet the stated goal and your are the low bidder, a disgruntled bidder could challenge your bid on the grounds that your DBE goals fail because they rely upon DBE suppliers who are not regular dealers in the products required by the specifications.
Second, the DOT is pressuring state agencies to more closely monitor compliance with the DBE supplier counting requirements and DOT investigations concerning DBE fraud and compliance are on the rise. In fact, late last year PennDot revised its rules for counting DBE suppliers to be consistent with DOT guidance offered in its Q&A.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
