PURPOSE: This rule describes when a DBE firm performs a commercially useful function, and how MoDOT and USDOT enforce that requirement in the DBE Program.

1. (1) DBE Program Contract Compliance Requirement. Pursuant to 49 CFR section 26.55(c), Missouri Department of Transportation (MoDOT) shall count contract expenditures made to a Disadvantaged Business Enterprise (DBE) contractor or subcontractor toward the contract’s DBE goal only if the DBE firm is performing a “commercially useful function” (CUF) on that contract.

   1. (A) A DBE firm performs a commercially useful function when it is responsible for execution of the work of the contract and is carrying out its responsibilities by actually performing, managing and supervising a distinct element of the United States Department of Transportation (USDOT)-assisted contract work involved. To perform a commercially useful function, the DBE must also be responsible, with respect to materials and supplies used by the DBE firm on the contract, for negotiating price, determining quality and quantity, ordering the material, and installing (where applicable) and paying for the material itself. To determine whether a DBE is performing a CUF, MoDOT shall evaluate the amount of work subcontracted, industry practices, whether the amount the firm is to be paid under the contract is commensurate with the work it is actually performing and the DBE credit claimed for its performance of the work, and any other relevant factors.

   2. (B) Some of these CUF factors are discussed below in more detail:

      1. 1. Management. The DBE firm must

manage the work that has been contracted or subcontracted to it. Management includes, but is not limited to, scheduling work operations, ordering equipment and materials, preparing and submitting certified payrolls, and hiring and firing employees. All work must be performed with a workforce the DBE firm controls, with a minimum of thirty percent (30%) of the work to be performed by the DBE firm’s regular, permanent employees, or those hired by the DBE firm for the project from an independent source other than the prime contractor. The DBE owner(s) must supervise daily operations, either personally or with a full-time, skilled and knowledgeable superintendent. The superintendent must be under the DBE owners’ direct supervision and control. The DBE owner must make all operational and managerial decisions of the firm. Mere performance of administrative duties is not supervision of daily operations;

1. 2. Materials. The DBE firm shall nego-

tiate the cost, arrange delivery, and pay for the materials and supplies for the project. MoDOT will review invoices to verify billing and payment. The DBE must prepare the estimate, quantity of material, and be responsible for the quality of materials actually installed or used. Two-party checks for payment for materials or supplies may be made to the DBE and the supplier only if that process is specifically approved by MoDOT in advance. No credit toward the DBE goal will be given for the cost of materials or supplies paid directly by the prime contractor for the DBE firm;

1. 3. Employees. In order to be considered

an independent business, DBE firms must have and keep a regular workforce. DBE firms cannot “share” employees with non- DBE contractors, and in particular, the prime contractor. DBE firms and the contractors must provide MoDOT with copies of their payrolls, to establish that the firms have separate and independent work forces.

1. (C) A DBE firm does not perform a CUF if its role is limited to that of an extra participant in a transaction, contract, or project through which funds are passed in order to obtain the appearance of DBE participation. In determining whether a DBE firm is such an extra participant, MoDOT shall examine similar transactions, particularly those in which DBE firms do not participate.

1. (3) Presumption that a DBE Firm is Not Performing a CUF. As provided in 49 CFR section 26.55(c)(3), if a DBE firm does not perform or exercise responsibility for at least thirty percent (30%) of the total cost of its contract or subcontract with its own work force, or the DBE subcontracts a greater por- Transportation Commission

tion of the work of a contract or subcontract than would be expected on the basis of normal industry practice for the type of work involved, MoDOT shall presume that the DBE is not performing a CUF.

1. (4) DBE’s Evidentiary Presentation to Support a CUF Finding. As provided in 49 CFR section 26.55(c)(4), when MoDOT presumes a DBE is not performing a CUF under section (3) of this rule, the DBE firm may present evidence to MoDOT to rebut that presumption. MoDOT shall receive that information on the record, at a hearing recorded verbatim before an independent hearing officer, which hearing is similar in process to those where an existing DBE firm’s eligibility is being removed, under rule 7 CSR 10-8.091. The DBE firm shall have the burden of proving, in such an evidentiary hearing on the record, that the DBE firm is performing or did perform a commercially useful function, given the type of work involved and normal industry practices. If the independent hearing officer rules in favor of the DBE firm in whole or in part, then the MoDOT sanctions or remedies for the apparent breach of the contract shall be reduced or eliminated to that extent. If the independent hearing officer finds that the DBE firm did fail to carry its burden and show that it did perform a CUF considering the type of work involved and normal industry practices, then MoDOT shall impose sanctions or contract remedies accordingly.
2. (5) Contractor’s Evidentiary Presentation to Support a DBE’s Performance of a CUF. Likewise, when MoDOT determines a DBE firm is not performing or has not performed a CUF and proposes to disallow or reduce the amount of the contract payments to the contractor involved, or assess liquidated damages against the contractor for its failure to meet its agreed-upon DBE contract goal, MoDOT shall first allow the contractor (and the DBE firm if appropriate) to present evidence to MoDOT to rebut that presumption. MoDOT shall receive that information on the record, at a hearing recorded verbatim before an independent hearing officer, which hearing is similar in process to those where an existing DBE firm’s eligibility is being removed, under rule 7 CSR 10-8.091. The contractor and DBE firm shall have the burden of proving, in such an evidentiary hearing on the record, that the DBE firm is performing or did perform a CUF given the type of work involved and normal industry practices. If the independent hearing officer rules in favor of the contractor (and DBE firm) in whole or in part, then the MoDOT sanctions or remedies for the apparent breach of the contract shall be reduced or eliminated to that extent. If the independent hearing officer finds that the contractor (and DBE firm) failed to carry their burden and show that the DBE firm did perform a CUF, considering the type of work involved and normal industry practices, then MoDOT shall impose sanctions or contract remedies accordingly.
3. (6) Review of CUF Determinations by Agencies of USDOT. As provided in 49 CFR section 26.55(c)(5), MoDOT’s decision on whether a CUF has been performed and the related matters is subject to review by the applicable USDOT operating administration, but these decisions are not administratively appealable to USDOT. It is MoDOT’s position that a MoDOT decision on whether a CUF has been performed is not a final action, and so is not subject to judicial review in Missouri courts under Chapter 536, RSMo, at least until after the applicable USDOT operating administration Federal Highway Administration (FHWA), Federal Aviation Administration (FAA) or Federal Transit Administration (FTA) has been requested to administratively review that MoDOT decision. At that time, the action (or non-action) of the USDOT operating administration may become the determination which is judicially reviewable, but a federal agency’s determination is not reviewable in the state courts of Missouri.
4. (7) Contract and Other Sanctions for Failure to Perform a CUF. The failure of a DBE firm to perform a CUF will result in the dollar value of that DBE firm’s work not being credited toward the contractor’s DBE goal for that contract. This can, and usually will, result in MoDOT withholding payment from the prime contractor of that entire amount which is not credited, if this results in the contractor’s failure to achieve the DBE participation goal for that contract. Deliberate conduct or indifference to the CUF requirements can also lead to the DBE firm’s removal of eligibility under the procedures of 7 CSR 10-8.091. In any and all cases of deliberate attempts by the contractor, a DBE firm, or other firms to circumvent the requirements of the USDOT or MoDOT DBE Program, or their related contract requirements, or fraud of any kind, these actions may lead to suspension or debarment of the firms and their affiliates by MoDOT and/or the United States, and may result in criminal prosecution and sanctions, plus civil and contractual liability, of any firm or person involved.
5. (8) The Obligation of the Contractor and the DBE Firm. It is the obligation of each contractor and DBE firm, prior to submitting a bid on a MoDOT contract, to inquire and understand the DBE Program requirements generally, and specifically the DBE’s obligation to perform a CUF, and how to value a DBE firm’s work for bidding and contract goal satisfaction purposes. Further, it is the contractor’s obligation to make sure that a DBE firm on a project performs a CUF on that federally-assisted contract, in accordance with the contractor’s approved bid and contract terms. MoDOT and USDOT have no duty or other obligation to first warn or advise a contractor or DBE firm of a failure to comply with the program requirements, before MoDOT or USDOT take administrative, civil or other actions as a result. If a contractor or DBE firm has any questions or concerns in this regard, they may contact the MoDOT External Civil Rights Unit, USDOT, or the appropriate FHWA, FTA or FAA office nearby. As with other legal requirements, ignorance of the DBE Program obligations is no excuse or justification for a contractor or DBE firm’s noncompliance with their contractual and program obligations.

AUTHORITY: section 226.150, RSMo 1994*; Title 49 Code of Federal Regulations part 26; section 1101(b) of the Transportation Equity Act for the 21st Century (TEA-21), Public Law 105-178, 112 Stat. 107, 113; and MoDOT’s approved DBE Program submittals to the U.S. Department of Transportation. Emergency rule filed May 10, 2000, effective May 20, 2000, expired Nov. 6, 2000. Original rule filed May 10, 2000, effective Nov. 30, 2000. *Original authority: 226.150, RSMo 1939, amended 1977.