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DBE was performing services it wasnot by using phony time sheets, payrollrecords, business cards, stationery,addresses and vehicle decals. In exchangefor acting as the empty vesselof the contractor, the prosecutors allegedthe DBE received a small fixedfee. In addition to the CEO and partownerof the general contractor, threeof his employees and the former ownerof the DBE all await sentencing.Comfort is not to be found in the allegedlyextravagant nature of the sins inthe case cited above. The OIG frequentlyprosecutes for much less. In December2012, for example, two contractors andthe owner of a DBE pled guilty to usingthe DBE as a mere pass-through whileobtaining more than $9.5 million of FederalAviation Administration contracts. 9To perpetrate the fraud, the contractorsallegedly negotiated the purchase anddelivery of windows and doors directlyfrom a manufacturer, but without anyparticipation by the DBE. As alleged bythe prosecuting authority, after a finalprice was agreed upon, a small mark-upwas incorporated into the contract andthe invoices were altered so that the DBE,and not the prime contractor, appearedto be the direct purchaser. For allowingthe use of its name in the transaction,the government contended, the DBE receivedthe aforementioned mark-up, despiteperforming no commercially usefulfunction in the transaction.It Ain’t Just the OrangeJumpsuit: The Not-So-Civil RemediesLiability for engaging in DBE fraud isnot limited to criminal prosecution. Underthe federal regulations, businessesthat engage in DBE fraud can be taggedwith exorbitant fines and become subjectto suspension and even debarmentfrom further DOT-assisted contracts. InMarch 2011, a subsidiary of one of thenation’s largest construction companiesentered into a nonprosecution agreementto settle allegations that it engagedin DBE fraud during a string of New YorkCity public works projects. 10 The subsidiarywas required to pay $19.6 millionin fines after contracting with a DBE formillions of dollars of work, although theDBE allegedly had no employees, ownedno equipment and performed none ofthe contracted-for work.How to Avoid InvoluntaryTransportation Work?There are two things every contractorshould be doing to ensure compliancewith DBE regulations. First, when approachedwith a situation that doesn’tpass the smell test, contracting entitiesshould just say no. The risks of participatingin a potentially fraudulent DBEscheme far outweigh any benefits. Morethan half of DOT criminal convictionshave resulted in prison terms. 11 Accompanyingcivil penalties have the potentialto be even greater — fines and forfeituresare often in excess of $100,000.Furthermore, many of the companiesand individuals involved in DBE casesface the imposition of partial or permanentbans from future participation intransportation projects receiving federalfunding or support.Second, contractors need to institute aDBE compliance program. This includesidentifying a point-person for the managementof DBE subcontracting. Thisperson should be responsible for identifyingand screening certified and capableDBEs, as well as subsequent oversightand documentation of their workperformance. Any work performed bythe DBE should be documented in awritten contract. The compliance programshould also include specific proceduresfor the DBE to follow with regardto estimating and bidding, contractnegotiation and performance account-Ensuring ComplianceCommon Red FlagsContractor Due DiligenceThe DBE owner lacks the sufficientbackground, expertise or equipment to performthe contracted work.The orders and payment for necessary suppliesare made by individuals not employed by the DBE.Employees shuttle back and forth between theprime contractor and the DBE.The DBE owner is never present at the jobsite.The DBE subcontracts an unusual amount of itscontracted work to a non-DBE.Ensure that the work you need performed is in the DBE’s typical line ofbusiness.Ensure that the subcontract agreement requires the DBE to estimate the work,negotiate and write the purchase orders, pay for the requisite materials andtake delivery of such materials.Ensure that the subcontract requires the DBE to perform the work with itsown labor force.Ensure that the DBE manages and supervises the work it has contracted forwith its own superintendents.Ensure that the DBE intends to perform at least 30% of the workcontracted for by its own labor force, or your State DOT may presumethat the DBE is not performing a commercially useful function. Also, anywork that a DBE subcontracts to a non-DBE does not count toward acontract’s benchmark.18 Utility Contractor | August 2013