L AW : T H E C O N T R A C T O R ’ S S I D E

Caudle is a principal in Kraftson Caudle LLC, a law fi rm in

McLean, Va., specializing in heavy-highway and transportation

construction. Caudle can be contacted via e-mail at lcaudle@kraftsoncaudle.com.

On Oct. 21, 2008, a federal appeals court in Ohio reinstated a lawsuit fi led in 2003 by a consortium of Kentucky-based disadvantaged business enterprise (DBE) sub-contractors against Kentucky Trans-portation Cabinet (KTC) offi cials. The lawsuit involved claims by the DBEs pursuant to federal racketeering stat-utes against two KTC offi cials, alleg-ing they had committed fraud in the awarding of contracts under

the federal DBE program on state-run projects. The lawsuit claimed that the state offi cials committed

fraud in the DBE program by falsely certifying as DBEs businesses that were not minority- or women-owned and operated; and by knowingly permitting properly certifi ed DBEs not to perform the work or supply the materials for projects as required under their contracts, but to merely “broker” the supply of work and materials, with the actu-al work performed by or materials supplied by companies that were not eligible for DBE certifi cation.

Examples of the types of fraud alleged were: certifi ca-tion of a DBE—over the objection of the state Offi ce of Minority Affairs—that consisted of the wives of four exec-utives of a major road-building company with little to no experience to operate a construction company; certifying a DBE even though the defendants knew the net worth of its owner exceeded the established DBE program limits; and scheming with a road builder to take a DBE contract away from a certifi ed DBE and re-award it to an improp-erly certifi ed DBE that was related to the road builder.

In addition, the DBE contractors alleged that they were harmed by the affi rmative statements of the KTC offi cials (in letters, public speeches and private meetings) that they would fairly and legally administer the DBE program and that if the plaintiffs caused their companies to be cer-tifi ed as DBEs, they would be given an honest chance to compete for contracts administered by the KTC. Re-lying on those representations, the DBEs expended time and money to obtain DBE certifi cation, to maintain their

businesses as DBEs and to bid for contracts under the DBE program. The DBE contrac-tors sought damages for those efforts and for profi ts lost on work that went to improp-er DBEs and otherwise would have been

awarded to them.

Don’t game the system

The lawsuit highlights the problems some road and bridge contractors face in at-tracting bids from women and minority subcontractors on large projects to meet the

government’s established goals. This prob-lem is especially acute in rural locations. When this occurs, all the parties to the proc-ess (prime contractors, subcontractors and government agencies) need to refrain from taking extreme measures such as creating or becoming complicit with improperly certi-fi ed DBEs. Instead of “gaming” the system by fi guring out how to work around the pro-gram, all parties need to focus on how to make the program work.

The lawsuit also underscores the potential for real liability on the part of government offi cials and contractors in complying with DBE program requirements. The temptation to make a quick buck by “working” the DBE regulations to one’s own advantage must be avoided, otherwise substantial liabilities (civil and criminal) can be incurred. While this case remains undecided, its outcome could have a signifi cant infl uence on fu-ture legal challenges by DBEs who believe they have been unfairly treated. The case is Chaz Concrete Co., LLC v. Codell, Civil Ac-tion No. 3:03-52-KKC (U.S. 6th Cir. Court of Appeals).

BY LARRY

CAUDLE

State offi cials should resist temptation to falsely certify

A DBE / not a DBE

The DBEs expended time and money to obtain DBE certifica-tion and to bid for contracts under the DBE program.

ROADS & BRIDGES • DECEMBER 2008 • 17