Finding and retaining diverse teams is a challenge facing our entire industry. Now, more than ever, as trillions in federal infrastructure dollars start flowing, it’s clear that organizations need to put in the extra work to build teams that will level the playing field for Minority, Women, and Disadvantaged Business Enterprises (MWDBEs).
DBIA instructor and legal expert, Stephen Reams, offered his perspective in the latest issue of Integration Quarterly Magazine.
Creative Methods of Encouraging Diverse Hiring and Subcontracting on Construction Projects
Stephen M. Reams, Esq.
Partner, Smith, Currie & Hancock LLP
Federally assisted projects, such as Department of Transportation works administered under 49 CFR Part 26, provide both “carrots and sticks” to help ensure a level playing field for Disadvantaged Business Enterprises (“DBE”’s) and Small Business Concerns (“SBC”’s) as defined under section 3 of the Small Business Act. These programs encourage the very worthwhile goal of removing barriers in federal contracting and promoting the use of DBE’s through a program of funding, reporting, and consequences.
In general, recipients of the federal funds must commit to non-discrimination, enact affirmative policy statements regarding this commitment, and require similar buy-in by their subcontractors and other lower-tier participants. Further, they must gather information on the availability of DBE’s in the relevant market and adopt an approved DBE program. Non-compliant contractors may face penalties such as withholding of payments, sanctions, liquidated damages, or disqualification.
Clearly, the federal government enjoys tremendous capabilities through powerful funding and rule-making authority to encourage greater federal participation by DBE’s and SBC’s. Nonetheless, motivated owners, general contractors, and design-builders in the private sector also have tools available to facilitate progress in addressing historic discrimination and encourage greater DBE and SBC participation on non-governmental projects.
Although the intricacies of the application of Title VII to private affirmative action programs is well beyond the scope of this article, there are procedures short of affirmative action that can also be highly effective at encouraging more DBE participation.
First, parties should ground their activities and corporate behavior on a firm commitment to non-discrimination. The federal government requires an affirmative statement that “[the participants] shall not discriminate on the basis of race, color, national origin, or sex in the performance this contract.”
Similar commitments are essential on private projects. They are most effective if the owner or other upstream party also affirmatively represents that it does not discriminate on such grounds. These affirmative representations should be embedded in the contracts, proposals, and statements of qualifications.
Adopting DBE reporting requirements, even without quotas or specific consequences, can be another effective method of encouraging greater DBE participation. By way of comparison, the Florida Bar has long encouraged its attorney members to participate in pro bono services (free of charge legal representation to low-income individuals or organizations serving such persons) by mandating the reporting of those activities without requiring any minimum commitment.1
The building community can encourage the greater use of DBE participation through similar reporting requirements in their contracts. If this method is utilized, the reports should be part of the mandatory documentation required to support applications for payment. The relevant contract language should make them, as well as other required documents such as lien waivers, conditions precedent to the duty of the owner or other upstream party to make payment to the reporting subcontractor.
Another effective procedure is to tie DBE participation to performance reviews. These programs depend on the Owner establishing a non-discriminatory set of goals for DBE participation and then utilizing the success of the contractor or design-builder in periodic performance reviews. Points can be awarded – or subtracted – for success or failure in achieving the goals of the program. This type of program could be part of an award fee program. These programs incentivize desirable behavior by tying part of a party’s fee to the achievement of the desired goals.
Design-build provides additional opportunities to encourage increased DBE participation. Qualifications-Based Selection design-build projects commence with a Request for Qualifications with subsequent evaluation and shortlisting for more specific competition and selection. During the qualifications evaluation stage, owners could require submission of a plan of action for securing participation by DBE subcontractors and subconsultants commensurate with market availability of such firms.
Owners desiring to use this process would need to establish an appropriate number of points to be awarded and an accurate industry-standard method of grading. Just like it is imperative to employ evaluators who are familiar with the design-build process, it is equally important that the evaluators understand effective DBE programs. In addition, owners would need to conduct realistic market studies in advance to determine the availability of potential DBE subcontractors and subconsultants.
49 CFR Section 26.1 sets forth admirable goals for Department of Transportation projects. These include ensuring non-discrimination, creating a level playing field, removing barriers to participation by DBE’s, promoting the use of DBE’s and developing those firms into competitors beyond the DBE market – all through programs that are narrowly tailored to comply with applicable law.
These socio-economic programs provide important opportunities for DBE’s and for SBC’s while increasing the number of contractors and subcontractors available in the marketplace to deliver crucial projects for the benefit of all of society. Diversifying contractor and subcontractor participation can also bring innovation, unique problem-solving perspectives and promote goodwill in the marketplace for private owners while further advancing these goals in the wider marketplace. ◼