A recent article on contracting with Disadvantaged Business Enterprises, published in a widely read construction law periodical, raised eyebrows here at O’Riordan Bethel. The apparent objective of the article was to warn the reader against the purportedly grave dangers of doing business with DBEs. The article suggested caution when contracting with DBEs for a variety of reasons, including the notion that DBEs are front organizations that do not perform a useful function. As a law firm that has worked with a host of extraordinarily competent and professional DBE construction companies over the years, we are in an excellent position to respond.
By way of background, the federal DBE program is administered by the U.S. Department of Transportation (DOT). Similar state programs are overseen by entities such as MDOT (Maryland), VDOT (Virginia) and DDOT (the District of Columbia). Any business that has sought or considered seeking DBE status knows that it is an involved process that unfolds within a regulatory framework in which compliance is paramount.
Certified DBEs are especially attractive subcontractors because of state and federal DBE contracting goals. Certification, however, is just the beginning of the story for DBEs. Ongoing compliance is a day-to-day business imperative. However, in many ways, DBE compliance is just like any other regulatory or licensure requirement that businesses face. This goes to the heart of why we think the doom and gloom of the article in The Construction Lawyer is misplaced.
The article’s argument is as follows: General contractors have gotten into big trouble in recent years for engaging in DBE fraud. Therefore, you should be extremely careful about contracting with DBEs. We think is an oversimplification that misses the mark.
The bigger picture looks more like this: General contractors seek out DBEs to meet DBE subcontracting goals. Why? Because it improves their bottom line. However, just as in any other market, there are those who are willing to cut corners to make themselves more attractive subcontractors. Just as a GC obviously should not contract with a company that lacks a required license, it should be equally obvious that it should not contract with a DBE that can’t meet compliance criteria. It’s true that this requires an extra layer of investigation, but that is simply part of the federally mandated process.
A federal contractor who gives up on DBEs, as the referenced article suggests, will find itself at a significant disadvantage. The good news is that diligent GCs and outstanding DBEs (many of whom we are proud to call clients) who have the capability and know-how to navigate this regulatory landscape will continue to provide outstanding service to their government clients.