Requirements for Contracts with DBE Provisions

The Disadvantaged Business Enterprise (DBE) Program exists to create a level playing field on which DBEs and small businesses can compete fairly for transportation contracts. The Program requires ADOT to set DBE contract goals if it determines that it cannot meet its overall annual goal for DBE participation in other ways.

A DBE contract goal requires a bidder to include enough DBE participation on the contract to meet the goal, or to show good faith efforts to do so. For example, ADOT might set an 8 percent DBE goal on a construction contract. Bidders are required to show that they have DBE participation the meets or exceeds 8 percent of their bid or demonstrate that they have made good faith efforts to find DBE firms to work on the contract.  If the bid is $1 million, a bidder with $80,000 or more in DBE participation has complied with the contract goal. A bidder that only has 5 percent DBE participation but has shown good faith efforts to reach 8 percent participation has also complied with the DBE contract goal. DBE prime contractors may not count their own participation in complying with the contract goal.

When counting DBE participation, the DBE must be certified in the category of work it performs in order for that work to count towards DBE participation. Further, only the value of work actually performed by the DBE counts toward DBE participation, and it is only counted after the work has been paid for. Certain special rules apply for suppliers and for trucking firms.

See the DBE/SBC Database section below to learn how to search for DBE and SBC subcontractors.  

If DBEs cannot be found that would adequately satisfy the established DBE goals, you must prove that you have at least made a good faith effort to find such DBEs in order to be awarded the contract. See the Good Faith Efforts section below for more information on good faith efforts.

More information on the ADOT DBE policy and how it is implemented can be found on the ADOT website.

The Associated General Contractors of America have produced a helpful guide to working with DBEs as a Prime, called the Disadvantaged Business Enterprise (DBE) Contractors’ Tool Kit. You can find it on the AGC website.

It is important to note that DBE involvement only satisfies DBE goals if the DBE serves a commercially useful function. Generally, this means that the DBE must perform the task itself and the task must be necessary for the completion of the project. The specific rules vary by the task being performed, however. 

A DBE will not be considered to perform a commercially useful function if it acts only as an extra participant in a transaction or project to provide the appearance of DBE participation. If a DBE does not perform or exercise responsibility for at least 30 percent of the total cost of its contract with its own work force, or if the DBE subcontracts a greater portion of the work of a contract than would be expected on the basis of normal industry practice for the type of work involved, ADOT will presume that the DBE is not performing a commercially useful function. If that determination is made, the prime contractor will not get credit for the participation of the DBE firm on the contract.

For a DBE trucking company to be deemed to be performing a commercially useful function, the DBE must manage and supervise the entire trucking operation for which it is responsible on a particular contract. Further, the DBE must itself own and operate at least one truck, and it must use that truck each day on which it is earning credit toward the DBE goal.

When a DBE is presumed not to be performing a commercially useful function as provided above, the DBE may present evidence to rebut this presumption. Decisions on commercially useful function matters are subject to review by FHWA, but are not administratively appealable to U.S. DOT.

See this video from the FHWA for more information on what qualifies as a Commercially Useful Function.

For more information on good faith efforts, as well as information on what sort of work satisfies the commercially useful function requirement of DBE goals, read the Commercially Useful Function Checklist in the BECO section of the ADOT website. 

In some cases, not all of the money paid to a DBE can count toward the DBE goal. In trucking for instance, if the DBE leases additional trucks (including operators) from another DBE, the total value of the transportation services counts toward the DBE goal. However, if the DBE leases additional trucks (including operators) from a non-DBE, credit towards the DBE goal is earned by the additional trucks only up to an equivalent amount to that earned by the DBE-owned trucks. For additional trucks leased from non-DBE companies, only the fee or commission paid to the DBE as a result of the lease agreement is counted toward the DBE goal.

For example, if Firm X (a DBE) owns and operates two trucks and leases three trucks from Firm Y (a non-DBE), then the costs for the trucks from Firm X and two trucks from Firm Y would count toward the DBE goal. For the additional truck from Firm Y, only the commission paid to the DBE as a result of the lease agreement would count toward the DBE goal.

For suppliers, 100 percent of the cost of materials and supplies is credited toward the DBE goal if they are obtained from a DBE manufacturer. However, if the materials are purchased from a DBE regular dealer (essentially a firm which regularly buys, stores, and sells supplies but does not manufacture them), only 60 percent of the cost of materials and supplies is credited. The cost of materials purchased from a DBE that is neither a manufacturer nor a regular dealer does not count toward the DBE goal, although the fees and commissions charged by the DBE to procure and supply those materials do count.

DBE credit for supplying paving grade asphalt and other asphalt products will only be permitted for standard industry hauling costs, and only if the DBE is owner or lessee of the equipment and trucks. Leases for trucks must be long term (extending for a fixed time period and not related to the time required to complete that specific contract) and must include all attendant responsibilities such as insurance, titling, hazardous waste requirements, and payment of drivers.

A DBE subcontractor may enter into second-tier subcontracts that are consistent with normal industry practices. However, items that are second-tier subcontracted by a certified DBE subcontractor will not be counted toward the participation goal unless the work is subcontracted to another certified DBE or no more than 30 percent of the DBE subcontract is second-tier subcontracted to a non-DBE.

One of the best ways of finding Disadvantaged Business Enterprises (DBEs) and Small Business Concerns (SBCs) is by using the Arizona Unified Certification Program’s DBE and SBC Directory. This is an online database of DBEs and SBCs licensed to do business in Arizona. The directory is searchable by offered services, business name, contact information, location, and certification type. The directory can also be downloaded to your computer in a variety of formats.

The directory can be found on AZ UTRACS.

Sometimes a bidder or proposer may not be able to find certified DBEs to meet a contract goal no matter how hard they try. It is acceptable to not meet a DBE contract goal so long as the bidder can demonstrate it has made a good faith effort to do so. That is, the bidder has taken all reasonable steps to find certified DBEs for the contract but still has not been able to meet the contract goal.

Although demonstrating good faith efforts is not a checklist, examples of good faith efforts include

• soliciting DBEs with the ability to perform the necessary work and allowing for a reasonable response time.
• identifying specific portions of the contract that may be performed by available DBEs, even if your own company has the capability of performing that work itself.
• providing interested DBEs with adequate information about plans, specifications and requirements of a contract in a timely manner so that they have the necessary information and opportunity to respond.
• negotiating in good faith with interested DBEs, and documenting such negotiations. It should be noted that, while there may be some additional costs involved in finding and using DBEs, this is not sufficient reason for failing to meet DBE goals so long as such costs are reasonable.
• making efforts to assist interested DBEs in obtaining bonding, lines of credit, insurance, equipment, supplies, or materials.
• using the services of DBE and small business support organizations to locate appropriate certified DBE subcontractors.
• being open to proposals from any DBE without a sound and thoroughly investigated reason for disqualifying that DBE.

It is important to note that there is no single process for making good faith efforts. As such, evaluation of whether efforts to find DBE subcontractors were sufficient is a judgment call by ADOT staff made on a case-to-case basis, and the ability of competing bidders to meet DBE goals may be taken into account. Regardless of other factors, a bidder must have reached out to the ADOT Business Engagement & Compliance Office for help meeting DBE goals or it will not be considered to have made good faith efforts.

For step-by-step guidance on how to satisfy good faith efforts requirements for ADOT, see the Good Faith Efforts guide on the ADOT website.

More information about how good faith efforts are evaluated is available in the FHWA video. 

A company bidding on a project with a DBE goal that did not meet the goal or make sufficient Good Faith Effort will not be awarded the contract.  A company may appeal a good faith efforts ruling by submitting a written appeal with the State Engineer Office.

When submitting a bid, you must submit an assurance that you have either met the DBE goals for the project or have made a good faith effort to do so. This assurance cannot be changed after the bid. After submitting a bid, you must submit one of these two items:

• Detailed evidence of good faith efforts
• Detailed information on which DBEs you intend to employ, which tasks they will perform, and the dollar amount of the DBE commitment

Once you have provided a list of DBE subcontractors you intend to use on a project and it has been approved by ADOT, you may not change subcontractors or their tasks without written consent from ADOT’s Business Engagement and Compliance Office (BECO) unless the entity that awarded you the contract eliminates items of work subcontracted to the DBE.

Should a DBE subcontractor be unwilling or unable to complete its work, the prime contractor must notify BECO and the ADOT Resident Engineer immediately, and provide reasonable documentation that this is the case. The prime contractor may then request permission from BECO to replace the DBE subcontractor in question.

Prime contractors must notify DBE subcontractors of any intention to terminate or substitute them as well as the reasons for doing so (and send a copy of that notice to BECO) at least 5 days prior to making a formal request to BECO. This allows the DBE subcontractor time to respond or object.

Upon receiving a formal request to terminate or substitute a DBE subcontractor, BECO and ADOT may only approve the request if there is good cause to do so. Good cause includes

• the listed DBE failing or refusing to execute a written contract.
• the listed DBE failing or refusing to perform the work of its subcontract in a way consistent with normal industry standards. However, good cause does not exist if the failure or refusal results from the bad faith or discriminatory action of the prime contractor.
• the listed DBE failing or refusing to meet the prime contractor’s reasonable, nondiscriminatory bond requirements.
• the listed DBE becoming bankrupt, insolvent, or exhibiting credit unworthiness.
• the listed DBE being ineligible to work on public works projects because of suspension and debarment proceedings.
• ADOT determining that the listed DBE subcontractor is not a responsible contractor.
• the listed DBE voluntarily withdrawing from the project and providing ADOT with written notice of its withdrawal.
• the listed DBE being ineligible to receive DBE credit for the type of work required.
• a DBE owner dying or becoming disabled with the result that the listed DBE subcontractor is unable to complete its work on the contract.
• other documented good cause which ADOT determines compels the termination of the DBE subcontractor.

If a DBE subcontractor is to be replaced, the prime contractor must either replace it with another DBE subcontractor or else provide documentation of good faith efforts to find other DBEs to do the work. Failure to do so may result in financial sanctions, contract termination, or disqualification from participation in other ADOT projects.

For a clearer sense of the specific requirements included in contracts with DBE goals, the best approach is to review the contents of a construction advertisement for a project similar to one you might participate in. 

Documentation for projects currently being advertised can be downloaded from the Contracts and Specifications section of the ADOT website.

The special provisions document in particular is likely to contain specific information about DBE requirements for the project.

If a contractor is the apparent low bidder and indicates in its bid that it will meet the project DBE goal, it must submit DBE Pre-Award Forms within 7 calendar days from the date of bid opening. The 7 calendar days will change to 5 calendar days on January 1, 2017. DBE Pre-Award Forms include DBE Intended Participation Affidavit Form for each DBE firm used to meet the DBE goal, and a DBE Intended Participation Affidavit Summary Form listing all DBEs intended to be used on the contract and the creditable amounts. Prime contractors must also complete an online Bidders List within the same time frames listed above. There is a comprehensive list of the DBE Pre-Award Forms listed on the