February 2014

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:

  1. through all reasonable means, aggressively soliciting DBE’s to perform available work;
  2. breaking out contract work to increase the likelihood that DBE goals will be achieved;
  3. subcontracting work to a DBE that a contractor intended to self-perform; and
  4. 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.

Join us for a webinar on Mar 27, 2014 at 2:00 PM EDT.

Register now!

https://attendee.gotowebinar.com/register/5788498068269059073

On January 13, 2014, the Department of Justice announced that two former executives of Schuylkill Products, Inc. had each been sentenced to 2 years in federal prison and forced to pay $119 million is restitution because of their role in what the FBI called the largest ever fraud involving the Department of Transportation’s (DOT) DBE Program

In recent years, federal prosecutors and the DOT’s Inspector General have significantly stepped up enforcement of the DOT’s DBE Program and have brought several high profile cases resulting in civil penalties and jail time. Additionally, contractors who fail to understand the DOT’s DBE rules can see bids challenged and lost and be forced to defend costly whistleblower lawsuits. Moreover, contractors that operate under a State or Local DBE program are not immune to risk.

Construction attorney Wally Zimolong, Esq., will lead a program that will discuss best practices for contractors and subcontractors in complying with the DOT’s DBE program and how to avoiding government investigations, bid challenges, and whistleblower lawsuits related to non-compliance. Wally counsels clients throughout the nation on issues related to compliance with federal, state, and local D/M/WBE programs.

After registering, you will receive a confirmation email containing information about joining the webinar.

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News of the indictment of 10 members of the Ironworkers Union, left many wondering “What took them so long?”  As any developer or merit shop contractor will tell you, the actions that the Ironworkers are alleged to have engaged in are not solely the purview of the Ironworkers.  Indeed threats, violence, and property destruction are the modus operandi for many trade unions trying to obtain work for their members.

Those cheering the news can thank the federal court for the Western District of New York for its decision in U.S. v. Larson, which was issued in September 2011.  The case also explains why federal prosecutors have for a long time been hesitated to indict members of organized labor for actions that would land anyone else in jail.  The case also could signal a wave of indictments against organized labor to come.

The Larson case involves the indictment of members of the International Union of Operating Engineers under the RICO law, which is the same law used to indict the Ironworkers.  Like the indictment in the Ironworkers case, the indictment in that Operating Engineers case alleges that the Operating Engineers made threats, engaged in violence, and destroyed property in an effort to get merit-shop (non-union) contractors to sign a collective bargaining agreement with the union.

The defendants moved to dismiss the indictment arguing that under a under a controversial 1973 U.S. Supreme Court decision, U.S. v. Enmons, which stated that act of violence by a labor union did not violate federal law, if the acts were committed in furtherance of “a legitimate union objective.”  In Larson, the defendants argued that their ultimate objective, to get non-union contractors to sign collective bargaining agreements, was “a legitimate labor objective,” and, therefore, they were immune from prosecution under Enmons.

The Larson court rejected that argument and distinguished Enmons.  The Larson court pointed out that the union in Enmons was in a legitimate strike with the employer.  The Court pointed out that other courts had refused to extend Enmons to claims where a union uses the threat of violence to obtain a new collective bargaining agreement from an employer not previously a signatory to it. The Court also distinguished the special way federal labor laws treat construction industry employers from other industries.  In doing so, the Larson Court ripped away the veil of protection Enmons had afforded to labor unions and which enabled them to escape prosecution under the RICO laws.

It took the courts 41 years to limit the Supreme Court’s holding in Enmons, which answers the question of “what took so long?”  But in the wake of the Larson decision and in the wake of the Ironworkers indictment the question that organized labor should be asking is “who is next?”