What is Commercially Useful?

Why should we SDMWVLGBTBE (Small, Disadvantaged, Disabled, Minority, Women, Veteran, Lesbian, Gay, Bisexual or Transgendered Business Enterprise) care about Commercially Useful Functions (CUF)? Because our federal government or prime vendor clients can only take credit when the SDMWVLGBTBE actually performs, manages and/or supervises distinct elements of work that are necessary to fulfill the delivery of contracted goods or services. Or, in plain language, the SDMWVLGBTBE has to provide real goods or services, themselves.

In the Department of Transportation world, primes and the state DOT agencies receive credit toward DBEs goal (contract and overall) only when a DBE (Disadvantaged Business Enterprise) working on a contract performs a CUF. According to the Federal Highway Administration (US DOT) … the question contract administrators often face is, “What are the management, supervision, and performance actions of a DBE firm that satisfactorily meet this requirement?” Evaluating these areas will form the basis to render a determination that a DBE has in fact performed a CUF. The contract is the one key reference point for any contract administrator and it is essential for this evaluation process. The contract has an effective description of the work to be performed by a DBE and is a legally recognized document.

The USDOT DBE regulations say: “A DBE 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 the work involved.” 49 C.F.R. § 55(c)(1).

New Mexico, Metro St. Louis, the Federal Highway Administration and Virginia are a few of the many entities who have posted guidelines and processes for determining CUFs in meeting DBE goals. They all reference, in one way or another the limitation of a DBE’s role as an extra participant. As a SDWBE, we have been approached too may times to count, to provide a service in a manner that seemed contrived just so the prime could win a contract based on plans for meeting DBE contract goals. We have told stories in various posts and blog entries about this issue over the last five years. Sometimes it seems to us as though there is nothing more insulting than asking an experienced vendor to “payroll a consultant for a fee” so the prime can use its own resource to meet SDMWVLGBTBE spend goals. Beyond being offended, we believe CUF is a major reason pass-through contracts are flawed, so let’s digress. Pepper Hamilton LLP discusses convictions and penalties that can result from fraudulent CUF claims. Seyfarth Shaw LLP identifies key factors in establishing CUF compliance.

So, we SDMWVLGBTBE need to be aware that there are real, substantial penalties that can be imposed if we comply with a prime’s request to perform as a pass-through subcontractor. Those penalties, beyond financial and potential probation or jail time, also mean the business is likely to be barred from participation in other contracts and will carry the stigma of fraud forever. That’s a pretty high price for a few quick bucks.

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