Improving DBE Programs: How To End The Abuses
The U.S. Dept. of Transportation’s disadvantaged business enterprise program was designed to support the development and growth of legitimate DBEs. But the way the program is currently written, interpreted and administered actually defeats those purposes and undermines the goal. Recent DBE fraud prosecutions, most of which involve the test of whether a commercially useful function has been performed, have led some contractors to respond with overzealous and incorrect interpretations of the rules for regular dealers (our firm falls into this category of company).
As background, all 50 states must comply with the DBE program. U.S. DOT serves as the administrator and ultimate authority. A handful of common-sense changes to the certification process for DBE suppliers would end rampant abuses.
First, eliminate the “DBE broker” designation for the construction industry and certify legitimate regular dealers only. Contractors continue to be indicted for working with illegitimate DBEs posing as regular dealers when they are actually brokers.
Second, develop an approved checklist of comprehensive and clearly defined criteria for regular dealers that is verifiable and objective. The list would include having a warehouse or store, inventory, delivery vehicles, loading equipment, employees and insurance policies. All state certifying agencies should be required to evaluate a DBE against this defined list. This would provide much needed transparency and uniformity to the certification process and a level playing field for all regular dealers. Another benefit would be the reduction in the financial burden currently imposed on both state certifying agencies and contractors.
Fourth, once a DBE is certified as a regular dealer, the myriad of unreasonable requirements should be eliminated. These requirements were originally put in place to ensure that regular dealers are truly providing a commercially useful function. But once a DBE is evaluated and certified against approved criteria, no additional requirements should be levied.
For example, a regular dealer is currently not allowed to have material drop-shipped from the manufacturer to the customer, despite the fact that it is often normal industry practice, which the policy states can be adopted and applied. Whether or not a regular dealer delivers material using their own truck and employees; decides to hire a third party to deliver; or has the material drop-shipped by the manufacturer should be irrelevant. The method of delivery should be by the most cost-effective and efficient means as determined by the regular dealer.
The adoption of these proposed recommendations would eradicate broker-related abuses by eliminating the broker designation; support the program’s true objectives; and ensure fair competition among regular dealers who are burdened with similar cost structures required of a commercially-useful-function compliant DBE. And that would be accomplishing a lot. n
Julie D’Agostino is president and Kathryn Wachsman is vice president of JMD Building Products, a certified disadvantaged business enterprise based in New York City. They can be reached at 212-256-1830.