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.

D'AUGSTINO

From a financial perspective, the argument is even clearer: Because contractors already working on razor-thin margins can only apply the amount of a broker’s markup to the established DBE goal, material is seldom – if ever – purchased from brokers in the heavy construction industry. After hundreds of conversations with contractors and other suppliers, our firm has yet to hear of an instance where a contractor knowingly purchased material from a DBE supplier acting in the capacity of a broker. Eliminating the broker designation poses effectively no risk to legitimate DBE regular dealers while cutting unneeded and costly red tape.

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.

WACHSMAN

Third, remove from the shoulders of contractors the burdensome and expensive responsibility of determining who is a legitimate, regular dealer providing a commercially useful function. That determination should rest with the state certifying agencies where it logically belongs. Placing a single state agency with this responsibility would provide a more cohesive and consistent interpretation of the policy. State certifying agencies would no longer spend exorbitant time and funds evaluating brokers who illegally pose as regular dealers. Instead, their primary function would be to evaluate a supplier’s commercially useful function to determine legitimacy and compliance as a regular dealer. Contractors would still be required to conduct due diligence, but it would be much more limited.

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.