M/W/DBE COMPLIANCE: - Protect Your "Good Faith Effort" Defense

Yet again, I feel compelled to restate what I have often stated on these pages. M/W/DBE specifications in public contracting are not requirements or quotas, but, rather, consistent with well-established legal precedent, "only" goals. That is the case no matter how aggressive or misleading are the pronouncements, and exhortations, and even threats, of public agency personnel. They are under tremendous, job-saving political pressure to confirm your strict compliance.

This is not to imply that you should fail to strictly adhere to these contractual provisions or that every opportunity to do so should not be exploited. It is to suggest, rather, that a well-documented file memorializing each and every aspect of your good faith effort to comply is essential.

You have only two alternatives: (1) successfully and completely comply, or (2) have an extraordinarily well documented paper trail of your good faith efforts to comply. It’s that simple.

Note that in some cases the bona fides of your good faith effort might be determined by a funding agency upstream from the government agency with whom you are actually contracting and with whose personnel you are familiar. Do not let any adverse "good faith effort" finding be finalized without a timely and vigorous challenge or you could stand the chance of becoming defenseless against later backcharges imposed by the agency with whom you are contracting. Frequently, the funding of New York City or other municipal projects is controlled by such upstream parties as, for example, the New York State Department of Transportation.

A recent New York appellate case laid out the problem of not presenting sufficient evidence to a fund-controlling agency (rather than the contracting government entity) that held the purse strings and enforced DBE contract specifications.

The facts in this appellate case were as follows:

The plaintiff was the successful bidder on a project for the County of Orange, involving the repaving of roads. The contract provided that a "Notice to Bidders" and "General Specification," both, were "made a part hereof as fully as if the same were repeated at length herein." The notice to bidders provided that a certain percentage of the work on the project was to be performed by Disadvantaged Business Enterprise (hereinafter DBE) subcontractors. Specifically, the contract specifications provided that work was required to "be in conformance with the New York State Department of Transportation Standard Specifications for Construction and Materials, dated May 1, 2008," which provided that the New York State Department of Transportation (hereinafter NYSDOT) "will decide whether the efforts the Bidder made to obtain Disadvantaged/Minority/Women’s Business Enterprise (D/M/WBE) participation were good faith efforts’ to meet the goal[s]." Further, the contract entitled the County to "make an equitable deduction from the Contract price for any …work not done in accordance with the Specifications."

G&C Commentary

So what’s wrong with this picture? The contractor vigorously protested in court the significant backcharge it suffered for its alleged failure of DBE compliance on the federally funded road project. However, by then, it was too late. The appellate court made fast work of the case by affirming the lawsuit’s dismissal, by summary judgment no less.

The problem was that the NYSDOT had made the decision, not Orange County, which was the project owner. Although not clear on appeal, it appears that the contractor took no steps to timely challenge the NYSDOT’s determination which was "where the contractor’s fate was sealed."

As difficult as M/W/DBE compliance is now, it will continue to be so in the future. Governmental contracting agencies, at all levels, will increasingly demand more aggressive goals regardless of the availability of qualified DBEs. In this environment, you must know and understand every step of the process. Not only did the highway contractor involved suffer a significant financial penalty, it wasted both the cost of its lawsuit and its futile appeal by apparently not understanding the process.

The contract was clear; the NYSDOT was the "decider" concerning "good faith effort" determinations. Not immediately challenging the adverse determination, not the backcharge by the County based on that determination, doomed the contractor to be without the recourse of a viable court challenge. Where the time for a challenge to the NYSDOT’s determination had expired, there was not much left to do at the project level. Even if the County’s personnel were so inclined, they could not help with regard to a determination that was to be made by the NYSDOT. To adequately protect itself the contractor had to: (1) know when and how to challenge the NYSDOT’s determination, and (2) have a winning hand for such a challenge by carefully and extensively documenting each and every aspect of its good faith effort.

Do not expose yourself to considerable financial loss. As indicated, you have to know and understand the process and be prepared to protect your interests every step of the way.

Henry L. Goldberg may be contacted by email, hlgoldberg@goldbergconnolly.com or by telephone, 516-764-2800.

©Goldberg & Connolly 2015

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