1

DBE Commercially Useful Function (CUF)

Overview

Teresa Banks, National Civil Rights Team Manager FHWA Resource Center

Learning Outcomes

• Define Commercially Useful Function (CUF)• Describe Work Types and Counting DBE

Participation

• Identify Tips on Evaluating a CUF

• Approving Commitments

• Conducting On-site Reviews

2

COMMERCIALLY USEFUL FUNCTION (CUF)

26.55(c)(1)• A DBE performs a CUF when it is responsible for

execution of the …contract and is carrying out it’s responsibilities by actually performing, managing, and supervising the work involved. “ … with respect for materials and supplies used on the contract, for negotiating price, determining quality, quantity, ordering the material and installing (where applicable) and paying for the material itself,

No CUF – No Goal Credit !3

COMMERCIALLY USEFUL FUNCTION (CUF) - 26.55 (c)

• Management/supervision• Labor• Equipment• Materials/Supplies• Performance

Consideration for Evaluating CUF: Amount of work subcontracted Standard Industry practice DBE’s role

4

Subcontractors (100% or less)

Trucking Firms/Haulers (STA has two options)

Regular Dealers (i.e. suppliers) (60%)

Manufacturers(100%)Service Providers: (consultant/broker) (reasonable fees and commission)

WORK TYPE AND COUNTING

WORK TYPE AND COUNTING

DBE Subcontractor• Performs specific work items with own forces

pursuant to a contract agreement with prime• Must perform at least 30%• Furnish and install• Count 100% of prime’s payment to DBE

toward contract goal (labor and materials) -49 CFR §26.55(a)

6

DBE SUBCONTRACTOR

CUFEvaluation

Factors

Management

Workforce

Equipment

Materials

MANAGEMENT

The DBE Must Manage the Work

• Management Includes, but Is Not Limited To:• Scheduling Work Operations• Receive Quotes & Order Equipment and Materials• Preparing and Submitting Certified Payrolls• Hiring and Firing Employees• Make All Operational and Managerial Decisions• Supervise Daily Operations, Either Personally or With a Full Time,

Skilled, and Knowledgeable Superintendent Who Is Under the DBE Owner’s Direct Supervision

• Mere Performance of Administrative Duties Is Not Supervision of Daily Operations

8

MANAGEMENT RED FLAGS• Supervision of DBE Employees by Other Contractor

• DBE Provides Little or No Supervision of Work

• DBE’s Superintendent Is Not a Regular Employee

• Supervision Is Performed by Personnel Associated With the Prime Contractor or Any Other Firm or Business

• DBE Firm's Owner Is Not Aware of the Status of the Work or the Performance of the Business

• Inquiries by Recipient Are Answered by the Prime Contractor

9

WORKFORCE• DBE Firms Must Keep a Regular Workforce

• DBE Firms Cannot "Share" Employees With Non-DBE Contractors, Particularly the Prime Contractor or Subsidiary

• DBE Firm Responsible for All Payroll and Labor Compliance Requirements for All Employees Within the Control of the Company

• Direct or Indirect Payments by Any Other Contractor Will Not Be Allowed

10

WORKFORCE RED FLAGS

• Employee Paid by DBE and Prime

• Movement of Employees Between Contractors

• Employee Working for Prime in Morning and DBE in Afternoon

11

EQUIPMENT• DBE Firm May Lease Equipment If Consistent With

Industry Practices and at Competitive Rates

• A Lease Agreement Is Required and Should Be on Long Term Basis

• A DBE Firm May Lease Equipment on an Ad Hoc Basis From Another Contractor, Excluding the Prime Contractor or Affiliate, With Approval of the State

• Equipment Leased and Used by the DBE Firm With Payment Deducted From the Prime Contractor's Payment (s) to the DBE Is Not Allowed

12

EQUIPMENT

• Operation of the Equipment Must Be Subject to the Full Control of the DBE

• DBE Is Expected to Provide the Operator for Equipment and Responsible for All Payroll and Labor Compliance Requirements

• An Operator May Be Provided If the Equipment Is Specialized, Part of the Lease and Subject to Approval by State

13

EQUIPMENT RED FLAGS

• Equipment Used by DBE Firm Belongs to the Prime Contractor or Another Contractor With No Formal Lease Agreement

• Equipment Signs and Markings Cover Another Owner's Identity, Usually Through the Use of Magnetic Signs

14

Count cost of Materials only if:

• DBE negotiates the price, arranges delivery, takes ownership and pays for the materials and supplies for the project

• DBE prepares the estimate, quantity of material, and is responsible for the quality of materials

• May not count cost of material, supplies, equipment purchased/leased from prime

49 CFR §26.55(a) 15

MATERIALS

MATERIALS RED FLAGS• Materials for the DBE Ordered, or Paid For, by the

Prime Contractor

• 2 Party Checks (joint checks) From Prime to DBE Subcontractor and Supplier or Manufacturer. Joint check OK with State Approval

• Materials or Supplies Necessary for the DBE Firm's Performance Are Delivered To, Billed to or Paid by Another Business

• A DBE Prime Contractor Only Purchases Materials While Performing Little or No Work

16

WORK TYPE AND COUNTING

Trucking

Two Options for counting Trucks:

• Option 1: Count only DBE Trucks (owns, insures and operates, and employed drivers).

DBE trucking firm can count other trucks leased from another DBE.

17

WORK TYPE AND COUNTINGTrucking

• Option 2: Permits limited DBE credit for non-DBE trucks, but it cannot exceed the value of transportation services provided by DBE trucks.

• Example: DBE firm has 3 trucks, it can use up to 3 non-DBE trucks (credit received for 6 trucks).

• DBE credit can be given if DBE leases non-DBE trucks but uses DBE employees/drivers. (new rule)

Option 2 requires approval from FHWA before it can be used. 18

TRUCKING - RED FLAGS• DBE trucks never at jobsite• Unfamiliar trucks at jobsite (DBE & Non-DBE

trucks) • Prime using its trucks for work committed to DBEs• Large trucking commitment - compared to DBE

capacity• DBE does not own the right type of truck for the

contract work• Drivers do not know who they work for when asked

19

WORK TYPE AND COUNTINGDBE Regular Dealer• Prime contracts with a regular dealer to supply and

deliver products

• Regular dealer owns, operates a store or warehouse that contains products it sells to public

• For bulk items must own and operate distribution equipment

• 60% Credit - if the DBE is performing as a regular dealer – must determine the amount of credit on a contract-by-contract basis. 20

WORK TYPE AND COUNTINGDBE Manufacturer

• Prime purchases materials from a DBE manufacturer

• DBE operates a factory that produces materials on the premises to meet contract specifications

• Or, takes product and alters it to meet contract specs

• Count 100%49 CFR §26.55(e)(1)(i) 21

WORK TYPE AND COUNTING

DBE Service ProviderPrime hires a DBE to provide a service:• Professional• Technical• Managerial• Brokerage (facilitate the procurement of

materials and supplies)Count entire amount of fees or commissions if

reasonable - 49 CFR §26.55(a)(2)

22

Overall Performance - Red Flags

• Work Being Done Jointly by DBE Firm & Another Contractor

• The Work to Be Performed Outside of the DBE's Known Experience or Capability

• Any Portion of the Work Performed by the Prime Contractor or Any Other Firm

• The DBE Firm Is Working Without a Subcontract Agreement

• A DBE Prime Contractor Subcontracts More Than Customary or Standard Industry Practice

23

Overall Performance - Red Flags

• Agreement Between the Prime and DBE Artificially Inflates the DBE Participation

• Agreement That Erodes the Ownership, Control or Independence of the DBE Subcontractor

• DBE Works for Only One Prime Contractor or a Large Portion of the Firm’s Contracts Are With One Contractor

• The Volume of Work Is Beyond the Capacity of the DBE Firm

39

Key Factors to Consider: Amount of work subcontractedPayment is commensurate with work actually

performedStandard Industry PracticeDBE’s role

25

Tips for Evaluating A CUF

APPROVING DBE COMMITMENTSIs DBE certified to perform the type of work

listed on the prime’s commitment?Does the DBE have the capacity to perform

the work listed?Is the prime automatically credited 60% of

the cost of materials toward the contract goal based upon the assumption that a DBE material supplier will act as regular dealer? Is the dollar amount of the subcontract

commensurate with the type of work to be performed?

26

APPROVING DBE COMMITMENTS

Trucking• Beware of large dollar amounts for trucking

commitments• Do not accept DBE trucking commitments

that clearly can’t be met - consider a lack of GFE, or require prime use GFE to obtain additional DBEs

• Best practice: ask for trucking plan/schedule at certain time - before contract award or before notice to proceed

27

CUF Onsite Reviews

Recipients are required to implement compliance mechanisms and monitor contract performance to ensure compliance with 49 CFR 26.55.

28

29

CUF Onsite Reviews

• Project oversight is not just responsibility of Civil Rights staff

• Field personnel are in the best position to observe if the reality reflects the commitments or to observe suspicious behavior/practices• Project Inspectors• Area/Project Engineers

CUF Onsite ReviewsSUBCONTRACTORSReview the subcontract/lease agreementReview what function the DBE was hired to

performConduct Interviews DBE supervisors/superintendents DBE employeesLook at DBE Equipment Logos, marking, or magnetic signsOwned or leased?

30

CUF Onsite Reviews

Management Interviews/Observations• The DBE owner or manager provides little or no

supervision of work• The DBE has no control over scheduling and work

operations• DBE’s superintendent is not a regular employee of the

firm, or the prime/prime’s affiliate supervises the DBE’s work

• Prime contractor becomes the spokesperson for the DBE and the DBE cannot readily provide information or work status

31

CUF Onsite ReviewsWorkforce Interviews and Observations

• Interview Employees: Do they readily know who they work for? Do they appear on payrolls?

• Does it appear that workers are controlled or supervised by another contractor or prime?

• Do employees appear on prime contractor or other contractor payroll?

• Did DBE subcontract work to non-DBE?

32

CUF Onsite ReviewsEquipment Interviews and Observations• Is DBE using equipment that belongs to the prime or other contractor that

is not leased?

• Is the use of such equipment essential and integral to its business operations?

• Was the equipment used to complete a substantial portion of the work?

• Was there a reason for the use of equipment (emergency situation)?

• Did the prime claim credit in its commitment for equipment it leased to the DBE?

• Does the equipment leased by the DBE under the direction or supervision of the DBE

33

CUF Onsite ReviewsMaterials Review and Observations

Furnish and install• Do delivery slips, invoices, and certifications indicate

ownership and that the DBE participated in all phases of procurement?

Material supply contracts• If participation was counted at 60%, did DBE

transport materials or did they originate from the DBE’s principle place of business?

• Did DBE take possession of the materials or were items “drop shipped” by manufacturer?

34

CUF Onsite ReviewsDBE TruckingRecipient should develop trucking requirements and include in contract• Require DBE to provide a list of all trucks it will

use• Verify trucking firm before allowed on jobsite• DBE must report payments to supplemental

haulers, indicating whether or not DBE• Audits to verify accuracy of DBE reports• State DOT should require driver to provide valid

lease agreement at job site. 35

CUF Onsite Reviews

DBE Trucking Observations

The Recipient should have an effective oversight mechanism to verify that the value of DBE vs. non-DBE trucking services aligns with the original commitment?

36

CUF Onsite Reviews

Overall Performance Observations

• Is the DBE’s work distinct from that of another subcontractor or work performed by prime?

• Is the work designated under the DBE’s contract being performed by the prime or another company?

37

Overall Performance - Red Flags

• Work Being Done Jointly by DBE Firm & Another Contractor

• The Work to Be Performed Outside of the DBE's Known Experience or Capability

• Any Portion of the Work Performed by the Prime Contractor or Any Other Firm

• The DBE Firm Is Working Without a Subcontract Agreement

• A DBE Prime Contractor Subcontracts More Than Customary or Standard Industry Practice

38

Overall Performance - Red Flags

• Agreement Between the Prime and DBE Artificially Inflates the DBE Participation

• Agreement That Erodes the Ownership, Control or Independence of the DBE Subcontractor

• DBE Works for Only One Prime Contractor or a Large Portion of the Firm’s Contracts Are With One Contractor

• The Volume of Work Is Beyond the Capacity of the DBE Firm

39

• CUF is a counting issue. – Do not confuse it with certification.

• Key elements of CUF: actually performing, managing, supervising the work, and paying for materials and supplies.

• A DBE must perform a CUF to receive credit toward a DBE goal.

• DBE credit toward a goal is based upon the type of work.

• Payments to DBEs will determine if prime fulfilled its DBE goal obligation. 40

SUMMARY

Case StudyThe Area Engineer learns that Infinity Construction, a DBE subcontractor, did not own or lease the equipment used in the performance of work related to its landscaping subcontract. The Area Engineer determined that the prime owned the equipment used by Infinity, and also discovered that the prime had ordered all materials. The DBE’s subcontract was purported to represent the cost of labor and materials for seeding, planting, and the construction of a stone retaining wall.

The Area Engineer also determined that the DBE supervised the work and provided its own labor; the labor costs were deemed reasonable and represented 60% of the cost of its approved subcontract.

41

What Counts?In this scenario, what portion of Infinity’s work should count toward the goal

A. The cost of materials. B. The reasonable cost of labor provided by InfinityC. The reasonable cost of labor and the cost materials D. Items A and C