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The Do's and Don'ts of DBE Procurement


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The presentation given by Don Gregory and Mike Madigan to the CFMA February Luncheon covering DBE Procurement.

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The Do's and Don'ts of DBE Procurement

  1. 1. z presented by Tom Sigmund Ohio Society of CPAs Mega Tax Conference December 7-8, 2015 Dos + DON’Ts The of DBE Procurement Presented by Don Gregory + Mike Madigan CFMA | February 20, 2018
  2. 2. z YOURSELF Do you have an employee who may become disgruntled? Do you do public work with set-asides? Do you have an interest in avoiding civil liability? Do you want to avoid jail?
  3. 3. z If you answered “yes” to those 4 questions
  4. 4. z Civil LIABILITY Skanska 2011 $19.6M in fines NEW YORK Moretrench 2011 $3M in fines NEW YORK McHugh 2014 $12M in fines CHICAGO TesTech & CESO 2013 $2.883M in fines DAYTON! But everybody else uses “fronts”
  5. 5. z False Claims Act Incentives – Whistle Blowers
  6. 6. z Criminal LIABILITY Bovis 2012 $175K in fines 750 hours comm. service Tulio Landscaping 2008 $40K in fines 15 months in prison
  7. 7. z What does the government consider fraud?
  8. 8. z What does the government consider fraud?
  9. 9. z What are the “red flags” of DBE Fraud? DBE owner lacks background, expertise, or equipment to perform subcontract work or provide supplies Employees shuttle back and forth between prime contractor and DBE- owned business payrolls Business names on equipment and vehicles are covered with paint or magnetic signs
  10. 10. z There are financial agreements between the prime and DBE contractors The prime contractor and DBE have joint bank accounts There is an absence of written contracts DBE owner never present at jobsite Prime contractor always uses the same DBE Orders and payment for necessary supplies are made by individuals not employed by DBE-owned business Prime contractor facilitated purchase of DBE-owned business
  11. 11. z DBEs should perform a “Commercially Useful Function”
  12. 12. z A DBE performs a commercially useful function when it is responsible for execution of the work of the contract and is carrying out its responsibilities by actually performing, managing, and supervising the work involved
  13. 13. z What does the state of Ohio require?
  14. 14. z
  15. 15. z At least 51% of the business (stock, units, percentage) is owned by socially and economically disadvantaged person(s) EDGE Principles 51%
  16. 16. z Socially-Disadvantaged Person Race, Color Or Ethnic Origin Female Gender Chronic Physical or Mental Disability
  17. 17. z The personal net worth of the person at the time of initial application for certification must be less than $250,000 EDGE Principles Must not exceed $750,000 during any time of certification as an EDGE business enterprise
  18. 18. z
  19. 19. z 5% of the Available Points
  20. 20. z
  21. 21. z Only MBE Vendors Eligible
  22. 22. z TPA Remits .75% of Revenue Back to State
  23. 23. z
  24. 24. z Only Ohio- based certified MBE vendors may submit qualification statements
  25. 25. z TPA’s 6% Administrative Fee
  26. 26. z Want re-roof and other repair work to be goods or services exempt from Chapter 153 capital improvements DAS is pushing OFFC for more “repair work”
  27. 27. z Vendor payments reduced for 6% administrative fee
  28. 28. z DOs Document Your Good Faith Efforts1 Place DBEs on Solicitation Lists2 Remain Competitive in the DBE Procurement Market3 Maintain Relationships with Reputable DBEs4 Find Replacement DBEs5
  29. 29. z DOs Use Government Resources6 Make Reasonable Inquiries7 Maintain Monitoring + Enforcement Programs8 Cooperate with Enforcement Officials9
  30. 30. z DON’Ts Abuse Your DBE Certification1 Reject Reasonable Price Offers2 Use “Time and Material” or “Cost Plus” Unless Reputation is Established3
  31. 31. z DON’Ts Terminate for Convenience + Self-Perform4 Bury Your Head in the Sand5 Put Your Employees on the DBE’s Payroll6
  32. 32. z In short, DBEs should: Possess Required Experience1 Be Financially Independent2 Own or Rent Its Own Equipment3 Handle Its Own Payroll, Invoicing + Negotiations4
  33. 33. z DBE should not be a mere pass-through or middle man between performing parties
  34. 34. z What risks are there for Sureties + Advisors?
  35. 35. z United States ex rel. Scollick v. Narula, 2017 WL 3268857 Surety and broker face liability for principal’s alleged violations under the False Claims Act Case is still pending but Court denied initial attempts to dismiss the case
  36. 36. z Donald W. Gregory, Director Kegler Brown Hill + Ritter 614-462-5416 Mike Madigan, Director Kegler Brown Hill + Ritter 614-462-5478