Meeting Contract Requirements - Guide to Successfully Completing ADOT Projects

Subcontractor

DBE Subcontractor Requirements 

It is important for DBE subcontractors to understand DBE program requirements. The sections below discuss DBEs in the context of meeting contract requirements as a DBE subcontractor. For a fuller picture of how contract requirements work with DBEs, see the prime contractor section on Requirements for Contracts with DBE Goals

DBE Goals

DBE goals require that that a predetermined percentage of the total cost of a project must be paid to DBEs for eligible work performing commercially useful functions. Proper work and payment records from subcontractors are therefore necessary in order for the Prime Contractor to prove that goals were met.

Prime contractors count on their subcontractors to maintain DBE certification and have the proper licenses and certification for the type of work you are to perform. If, for any reason, you fail to obtain or maintain proper licensing and certification, it is critical that you inform the prime contractor immediately.

If you hire DBE tier subcontractors, it is similarly important for you to ensure that they meet all necessary requirements to count toward DBE goal credit.

Commercially Useful Function

It is important to note that DBE involvement only satisfies DBE goals if the DBE serves a commercially useful function. Generally, this means that the DBE must perform the whole of a task itself and the task must be necessary for the completion of the project. The specific rules vary by the task being performed, however. 

As a DBE, you will not be considered to perform a commercially useful function if you act only as an extra participant in a transaction or project to provide the appearance of DBE participation. If you do not perform or exercise responsibility for at least 30 percent of the total cost of your contract with your own work force, or if you subcontract a greater portion of the work of a contract than would be expected on the basis of normal industry practice for the type of work involved, ADOT will presume that you are not performing a commercially useful function.

If you are presumed not to be performing a commercially useful function as provided above, you may present evidence to rebut this presumption. Decisions on commercially useful function matters are subject to review by FHWA, but are not administratively appealable to U.S. DOT.

ADOT BECO staff and/or Construction Inspectors will visit construction work sites to conduct Commercially Useful Function reviews to ensure that this requirement is being met.  Contractors and DBE firms must cooperate and participate in interviews by ADOT staff that will make every effort not to disrupt workflow on the project.  

Information on questions asked in the interview is available from BECO.  

See this video from the FHWA for more information on what qualifies as a Commercially Useful Function. 

For more information on good faith efforts, as well as information on what sort of work satisfies the commercially useful function requirement of DBE goals, see the Commercially Useful Function Guidelines document in the BECO section of the ADOT website.

DBE Goal Credit

In some cases, not all of the money paid to a DBE can count toward the DBE goal. A DBE subcontractor may enter into second-tier subcontracts that are consistent with normal industry practices. However, items that are second-tier subcontracted by a certified DBE subcontractor will not be counted toward the participation goal unless the work is subcontracted to another certified DBE or no more than 30 percent of the DBE subcontract is second-tier subcontracted to a non-DBE.

If a DBE is deemed ineligible (decertified) or suspended by ADOT, the DBE may not be considered to meet a contract goal on a new contract. However, the DBE may still be considered to meet the contract goal under a subcontract that was executed before the DBE suspension or decertification is effective.

Joint Checks

Joint check agreements are arrangements where the prime contractor agrees to pay both the subcontractor and the supplier at the same time. This differs from the standard arrangement where the prime contractor pays the subcontractor, and then the subcontractor pays the supplier. They are most often requested by suppliers as a way to ensure payment.

Joint check agreements are subject to a number of rules, and are only allowed for DBE subcontractors if the following conditions are met:

  • The DBE subcontractor must be independent from the prime contractor and the supplier, and must perform a commercially useful function.  The DBE subcontractor must be responsible for negotiating the price of the material, determining quality and quantity, ordering the materials, installing (where applicable), and paying for the material.  The DBE subcontractor may not be utilized as an extra participant in a transaction, contract, or project in order to obtain the appearance of DBE participation.
  • The use of joint checks will be allowed only if the prime contractor, DBE subcontractor, and material supplier establish that the use of joint checks in similar transactions is a commonly recognized business practice in the industry, particularly with respect to similar transactions in which DBE’s do not participate.
  • A material or supply contract may not bear an excessive ratio relative to the DBE subcontractor’s normal capacity.
  • There may not be any exclusive arrangement between one prime and one DBE in the use of joint checks that may bring into question whether the DBE is independent of the prime contractor.
  • Any arrangement for joint checks must be in writing, and for a specific term (for example, one year, or a specified number of months) that does not exceed a reasonable time to establish a suitable credit line with the supplier.
  • The prime contractor may act solely as the payer of the joint check, and may not have responsibility for establishing the terms of the agreement between the DBE subcontractor and the supplier.
  • The DBE must be responsible for receiving the check from the prime contractor and delivering the check to the supplier.
  • The prime contractor cannot require the DBE subcontractor to use a specific supplier, and the prime contractor may not participate in the negotiation of unit prices between the DBE subcontractor and the supplier.

Provided these conditions are met, the prime contractor must submit a Joint Check Agreement Request form to BECO for approval. The prime contractor, subcontractor, and supplier must all sign the Joint Check Agreement Request form, which can be found in the BECO section of the ADOT website. 

Once BECO has approved a joint check agreement, all parties must retain documentation of the agreement and all payments made, and copies of canceled checks must be submitted by email to BECO so they can monitor the agreement. Failing to comply with BECO requirements and monitoring is considered a breach of contract.

Substitution/Termination of DBE

It is important for DBE firms to promptly and effectively meet contract obligations to prime contractors on ADOT projects.  However, there are times when a prime contractor might wish to substitute or terminate a DBE subcontractor after all reasonable efforts have been made to avoid this from occurring.  Communications and procedures outlined in Section 24.0 of the DBE EPRISE Contract Specifications outlines the process a prime contractor must follow in order to request the substitution/termination of a DBE listed on the DBE Affidavit to meet a contract goal. 

Any attempt to substitute one DBE for another or to terminate any DBE subcontractor must be approved by ADOT BECO, and the reasons for doing so must be explained. If the change would reduce DBE participation below the DBE goal, the change must be justified. Good cause for substitution or termination generally includes situations where the listed DBE

  • fails or refuses to execute a written contract.
  • fails or refuses to perform the work of its subcontract in a way consistent with normal industry practice standards.
  • fails or refuses to meet the prime contractor’s reasonable, nondiscriminatory bond/insurance requirements.
  • becomes bankrupt, insolvent, or exhibits credit unworthiness.
  • is ineligible to work on public works projects because of suspension and debarment proceedings pursuant to federal or state law.
  • is not a responsible contractor.
  • voluntarily withdraws from the project and provides written notice of its withdrawal to the Department.
  • is ineligible to receive DBE credit for the type of work required.
  • a DBE owner dies or becomes disabled with the result that the firm is unable to complete its work on the contract.
  • other documented good cause that the Department determines compels the termination or substitution of the DBE subcontractor.

If the termination of the DBE is approved, the prime contractor is still obligated to meet agreed-upon DBE goals and must make good faith efforts to find a substitute for the terminated DBE.

Failure to follow procedures and secure ADOT approval before substituting/terminating a DBE committed to meet a contract goal is a material breach of contract and ADOT will assess liquidated damages by deducting the dollar amount of the wrongfully substituted/replaced DBE subcontract plus 25 percent of the amount remaining to be paid to the DBE from the prime contractors contract amount.

Certification of Final DBE Payments

When each DBE subcontractor has been fully paid for all of the work they were contracted to perform, the DBE Certification of Payments form must be completed by the Prime contractor and signed by the DBE subcontractor.  The form must be submitted to ADOT by the prime contractor within 30 days of the DBE completing its work on the project before a project can be finally closed out.
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Pursuant to Title VI of the Civil Rights Act of 1964, and the Americans with Disabilities Act (ADA), ADOT does not discriminate on the basis of race, color, national origin, age, sex or disability. Persons that require a reasonable accommodation based on language or disability should contact ADOT’s Civil Rights Office at 602.712.8946 or at [email protected]. Requests should be made as early as possible to ensure the State has an opportunity to address the accommodation.

De acuerdo con el título VI de la Ley de Derechos Civiles de 1964 y la Ley de Estadounidenses con Discapacidades (ADA por sus siglas en inglés), el Departamento de Transporte de Arizona (ADOT por sus siglas en inglés) no discrimina por raza, color, nacionalidad, edad, género o discapacidad.  Personas que requieren asistencia (dentro de lo razonable) ya sea por el idioma o por discapacidad deben ponerse en contacto con la Oficina de Derechos Civiles al 602.712.8946 o en [email protected]. Las solicitudes deben hacerse lo más pronto posible para asegurar que el equipo encargado del proyecto tenga la oportunidad de hacer los arreglos necesarios.