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Disadvantaged Business Enterprise Participation in Construction
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This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

BY D. BRENT CARPENTER

This article originally appeared in the September 25, 2017 edition of the Daily Journal of Commerce Oregon.
 

Pretty much all public works construction contracts, and an increasing number of private construction contracts, contain disadvantaged business enterprise (“DBE”) participation goals. So, it is important that contractors—both certified DBEs and those contracting with them—know the law underpinning the various state and local participation programs. While an exhaustive review of those programs and the statutes and regulations empowering them is beyond the scope of this article, this article should familiarize contractors with the basic concepts of DBE participation programs.

 

Thirty years ago, the Oregon legislature enacted legislation with the goal of creating “[p]ublic policies and programs to eliminate the effects of long-term, open and pervasive exclusion of and discrimination against minorities and women from the business sector.” To that end, the legislature enacted legislation, Oregon Revised Statutes Chapter 200, which provides the rules for certification of DBEs and the administration of DBE programs at the state and local level. Those statutes empower related regulations, Oregon Administrative Rules Division 200. Further, federal law regarding DBEs, such as 49 Code of Federal Regulations Section 26, applies when a project receives funding from the federal government. Those programs, of course, all share a common goal—participation by DBEs in construction projects.

 

For example, at the local level, the City of Portland’s Subcontractor Equity Program provides that construction projects estimated to cost $150,000 or more include an aspirational goal of twenty percent of hard construction costs for disadvantaged, minority-owned, women-owned, and emerging small businesses, or “DMWESB.” Within that aspirational goal, a further goal of fourteen percent DBE, Minority-Owned Business Enterprise (“MBE”), and/or Women-Owned Business Enterprise (“WBE”) utilization is required. At the state level, the Oregon Department of Transportation’s (“ODOT”) Disadvantaged Business Enterprise program requires DBE participation on all United States Department of Transportation—and Federal Highways Administration—assisted contracts. ODOT is required to set DBE participation goals for a project and make “good faith efforts” to meet those goals through non-discriminatory hiring of DBEs and hiring of DBEs to meet assigned contract goals. ODOT is further required to monitor and enforce contractor compliance with the Disadvantaged Business Enterprise program and ensure that local public agency, which receive funding from ODOT, comply with the program.

 

Disadvantaged business enterprises are sometimes referred to collectively, as they have been so far in this article, simply as “DBEs.” However, there are several distinct categories of DBEs, each with its own certification requirements. Certification of firms is performed by the Office of Minority, Women, and Emerging Small Business (“OMWESB”), which is a division of Business Oregon, the state economic development agency. OMWESB certifies three types of DBEs: Minority/Women Business Enterprises (“MWBE”), Emerging Small Businesses (“ESB”), and Disadvantaged Business Enterprises (“DBE”). To be certified as an MWBE, a firm must be at least 51% owned and controlled by a socially and economically disadvantaged individual. Pursuant to statute (ORS 200.015), women and minorities are presumed to be socially and economically disadvantaged. The individual must contribute capital equal to ownership and control and manage day-to-day operations. The firm must not be dependent on non-DBE firms or individuals, must be properly licensed, and must not have average annual gross receipts in excess of $23.98 million. ESB certification is divided into two tiers, each of which must be properly licensed and be owned and operated independently. Tier 1 ESBs must have 19 or less employees and average annual gross receipts of no more than $1,925,199.64 for construction firms and $770,079.85 for non-construction firms. Tier 2 ESBs must have 29 or less employees and average annual gross receipts of no more than $3,850,399.31 for construction firms and $1,283,466.43 for non-construction firms. To be certified as a DBE firm, a firm must meet the same requirements as an MWBE, discussed above, with the additional requirement that the socially and economically disadvantaged individual’s personal net worth must not exceed $1.32 million. OMWESB maintains a directory of certified firms.

 

Prime/general contractors are required to make “good faith efforts” to meet DBE participation goals. While public agencies may define “good faith efforts” slightly differently, most definitions are fairly similar. For example, ODOT DBE contract provisions define “good faith efforts” as:

 

Efforts required to obtain and support DBE participation that could reasonably be expected to produce and maintain a level of DBE participation sufficient to meet the assigned DBE contract goal. Good faith efforts are required before Bid Opening, upon Contract Award, and continue throughout the performance of the contract to maximize DBE participation.

 

The ODOT DBE contract provisions further require that the contractor “make every reasonable effort during the course of the project to enable DBE firms to perform those portions of the contract work for which they have been committed.” The provisions also contain a procedure for terminating and replacing DBEs. Further, ODOT may require a contractor “to submit evidence of Good Faith Efforts at any time during the course of the contract and the contractor shall promptly submit such evidence.” These provisions provide an example of how seriously public agencies take DBE participation goals. Beyond mere lip service to the goals of the legislature recited above, DBE goals seek to achieve those goals through well-defined contracting methods. Therefore, prime/general contractors should take the time to learn the rules surrounding DBE participation programs to make sure they are in compliance. Similarly, given the stringent certification requirements discussed above, DBE firms should pay careful attention to their firms’ structure, organization, and financial condition to assure that they are in compliance as well.