MBE/DBE Contract Compliance Implementation and Monitoring

Center For Minority Business Development | 3/7/2012, 9:59 a.m.

Why is contract compliance important?

Contract compliance monitoring is important because it is a way to verify who is performing the work on government or large business contracts. Additionally, it allows the agency or business to verify whether the subcontractor(s) are actually performing the work they are certified to perform.

Who is impacted by contract compliance?

Federal, State, Local governments and large businesses have minority and small business programs that have targets and/or goals. Large businesses are affected when they have federal, state and local government contracts and it is mandated that they subcontract a percentage of work to certified minority vendors.

How does contract compliance work?

When a government agency that has a goal and/or target for MBE/DBE inclusion awards a contract to a non-minority prime contractor the agency has to perform contract compliance. The agency is monitoring whether the prime contract is fulfilling his contractual obligation. Contract compliance is a verification tool that is necessary in monitoring not only contract performance, but investigating whether the minority subcontractor actually performed any work on the project.

Compliance monitoring includes but not limited to the seven evaluation methods:

(1) site visits,

(2) interviews of personnel on job site

(3) verification of certified payroll

(4) review of company policies

(5) evaluation of "Good Faith Efforts"

(6) verification of MBE/DBE certifications

(7) review of cancelled checks paid to the subcontractors.

Contract compliance monitoring is a method used to reduce contract fraud and bid shopping. A prime contractor does not have a legitimate or "whole" bid to submit to a government agency or large business without getting quotes from their potential subcontractors prior to submitting the bid.

Games prime contractors play

"Bait and Switch." This is where the prime gets a quote from an MBE/DBE and they list the MBE/DBE in their bid documents. Upon being awarded the contract, the prime never uses the MBE/DBE listed.

"Use the MBE/DBE certification list" A prime contractor uses your name off a MBE/DBE list. The MBE/DBE has no knowledge that their company is listed on the project.

"Use your name for a fee" This is where the prime contacts the MBE/DBE and ask them outright "how much will it cost us to use your name?" The prime pays the MBE/DBE a fee and no work is performed by the subcontractor.

There are numerous other games that are used to circumvent the MBE/DBE inclusion on government and large business bids.

How do we address contract fraud, waste and abuse going forward?

One method is to institute strong contract compliance monitoring from start to finish on all government and large business procurements. Place the responsibility of the compliance monitoring in the government sector (inspector general's office) and in the private sector within their internal audit division. Add language in the bid documents that addresses the issue of an audit review of all bid documents including all bids submitted by the identified subcontractors.