Once a contract is awarded, the prime contractor has the burden of establishing the policies and procedures to ensure compliance with the minority participation goal requirements of the contract. Prime contractors are constantly struggling to comply with these requirements on a daily basis.
Federal, state and city agencies have been aggressively searching for new ways to ensure that prime contractors are held accountable for the M/WBE/DBE subcontractor utilization, tracking and compliance requirements. Some agencies are requiring prime contractors to complete training for the minority participation goal requirements, to regularly certify that they are on track to meet their subcontractor goals, and to develop automated methods to allow the agencies to track payments to subcontractors. Certain agencies intend to add language in future contracts to set liquidating damages for prime contractors who do not make a good faith effort to meet these goals.
As a general statement, second-tier subcontracting can be counted toward the minority goal requirements if the second-tier subcontractor is a qualified M/WBE or DBE (depending on the specific program) which performs a "Commercially Useful Function." The problem for the prime contractor is that there is no privity of contract with the second-tier subcontractor, and therefore, it may be difficult for the prime contractor to verify minority goal compliance. In New York, the DOT has identified "D/M/WBE Subcontractors second-tier subcontracting" as a circumstance "that may potentially be fraud and may be further investigated."
Regulations allow the prime contractor to apply for a waiver to reduce the minority participation goal if the contractor proves that he has made a "good faith effort" to hire M/WBE/DBEs. However, there are differing interpretations among the various contracting agencies as to what constitutes a "good faith effort." A higher bid price from an M/WBE/DBE is not in itself sufficient grounds for a waiver where the bid price is reasonable in nature. The prime contractor needs to establish a transparent working relationship with the contracting agency's Compliance Officer to work through these issues.