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U. S. Department of Transportation Updates Guidance on Prompt Payment and Retainage Requirements under the Disadvantaged Business Enterprise Program Regulation

The U. S. Department of Transportation (U. S. DOT) issues official Questions and Answers (Q&As) regarding how to comply with its Disadvantaged Business Enterprise (DBE) Program Regulation (49 C.F.R. Part 26). The Q&As are of particular interest to state DOTs and contractors working on U. S. DOT-funded projects. These Q&As were recently updated to address what must be done by state DOTs to ensure compliance with the prompt payment requirements for subcontractors and subconsultants on U. S. DOT-funded (or U. S. DOT-assisted) contracts.

A state DOT’s approved DBE program plan must require a prompt-payment-and-release-of-retainage clause in every state DOT-assisted contract. This clause must mandate payment no later than 30 days after the contractor receives payment from the owner for work performed by its subcontractor. Each contract a state DOT signs with a contractor (and each subcontract the prime contractor signs with a subcontractor) must include the following assurance:

The contractor, recipient, or subcontractor shall not discriminate on the basis of race, color, national origin, or sex in the performance of this contract. The contractor shall carry out applicable requirements of 49 CFR part 26 in the award and administration of DOT-assisted contracts. Failure by the contractor to carry out these requirements is a material breach of this contract, which may result in the termination of this contract or such other remedy as the recipient deems appropriate.

The DBE programs of participating state DOTs must also include a monitoring and enforcement mechanism to ensure that work committed to DBEs at contract award or subsequently is actually performed by the DBEs to which the work was committed. The enforcement mechanism must include a written certification that the recipient has reviewed contracting records and monitored work sites for this purpose.

The recipient’s program may also provide that any delay or postponement of payment among the parties may take place only for good cause and with the state DOT’s prior written approval. Further, the DBE program plan must describe the process used by the state DOT to resolve disputes concerning a DBE’s performance or indicate what happens in the event of a dispute.

With regard to payment of retainage, the Q&As offer guidance on when a prime contractor is required to release retainage, which is traditionally held on the prime contractor until project completion. For a subcontractor who satisfactorily completes its work prior to overall project completion, the retainage must be paid when that subcontractor’s scope is completed. State DOTs that receive U. S. DOT funds are also required to make incremental release of retainage (if any is being held) commensurate with the incremental acceptance of portions of the prime contractor’s work. The regulations further mandate a contract clause reflecting 30-day payment timing following incremental acceptance of the work performed by the subcontractor, or within 30 days of satisfactory completion of that subcontractor’s scope of work. These rules apply to all subcontractors, not just DBEs.

Compliance with applicable requirements of 49 CFR part 26 is essential for state transportation contractors, whose non-compliance may result in such sanctions as termination, withholding of progress payments, liquidated damages, and potential disqualification from future U. S. DOT-funded work. The guidance material, while not legally binding or mandatory, is issued to provide acceptable means (but not the only means) of compliance with the DBE program regulations. The Q&As are available on the internet at… .

Now is the time to ensure that your contract documents and company policies are in compliance with these regulations. Please consult with your counsel if you have any questions on DBE program compliance.

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