Liability for DBE Violations Under the False Claims Act

Contractors considering bidding for and performing contract work on state and local public work projects that are partially funded by the federal government are probably aware of possible contract requirements for utilization of Disadvantaged Business Enterprises (DBE) firms. They may not realize that failure to monitor compliance, much less deliberate violations, may result in civil penalties and even criminal sanctions under the federal False Claims Act.

A common abuse involves a non-DBE firm partnering with a firm that meets DBE eligibility criteria on paper, but performs little or no actual work. It can also be considered a False Claim violation if you engage DBE subcontractors, but some of your employees provide inaccurate information to help a favored firm obtain DBE certification status, or certify work as having been performed by a DBE when it performed little real work. The consequences may be severe, including a civil penalty of no less than $5,500 and not more than $11,000 per claim, plus three times the amount of damages which the government sustains. Debarment is also a possibility. Violations of the False Claims Act may have to be disclosed to contracting agencies, and failure to do so may be cause for debarment or suspension.

The author provides advice on how to avoid DBE violations. It includes establishing a position for an ethics and compliance officer; creating contractor compliance manuals for Disadvantaged Business Enterprises; and having trained personnel observe DBE subcontractors on the job.