If you are a business owner who performs work on contracts as a Disadvantaged Business Enterprises (DBEs) or Airport Concession Disadvantaged Business Enterprises (ACDBEs), you should be aware of some significant changes to the prompt payment rules that took effect earlier this year.
The prompt payment rules are designed to ensure that DBEs and ACDBEs receive timely and full payment for their work on U.S. Department of Transportation (“DOT”)-assisted contracts. The rules require prime contractors to pay their subcontractors within a certain period of time after receiving payment from the recipient (the state or local agency that receives DOT funds). The rules also limit the amount of retainage (the portion of payment that is withheld until the completion of the work) that prime contractors can hold from their subcontractors.
The final rule introduces some significant changes to the prompt payment rules that affect both prime contractors and subcontractors. Here are some of the key changes that you should know:
- Recipients must have mechanisms in their DBE programs to monitor and enforce the prompt payment and retainage requirements by all program participants. These mechanisms must include appropriate penalties for non-compliance, such as withholding payments, suspending work, or terminating contracts. Recipients must also approve any delay or postponement of payment among the parties for good cause.
- The prompt payment and retainage requirements apply not only to the first-tier subcontractors, but also to the lower-tier subcontractors. This means that prime contractors must ensure that their subcontractors pay their sub-subcontractors promptly and fairly, and that they comply with the retainage limits.
- Prime contractors must make up any shortfall in DBE participation due to delayed payment issues. For example, if a prime contractor fails to pay a DBE subcontractor on time, and the DBE subcontractor withdraws from the contract or reduces its scope of work, the prime contractor must find another DBE to replace the lost participation and meet the contract goal. The prime contractor must document its good faith efforts to do so.
- Recipients must not count the participation of a DBE subcontractor toward the prime contractor's final compliance with the DBE obligations until the prime contractor has paid the DBE the amount being counted. This means that the prime contractor cannot claim credit for the DBE subcontractor's work until it has fulfilled its payment obligations to the DBE subcontractor.
- Recipients must have mechanisms for monitoring and oversight to evaluate whether the prime contractor is on track with meeting its DBE commitment and whether any projected shortfall exists that requires the prime contractor's good faith efforts to address. This means that the recipients must regularly review the prime contractor's progress and performance in meeting the DBE goal and take corrective actions if necessary.
These changes are intended to improve the accountability and transparency of the DBE and ACDBE programs and to ensure that DBEs and ACDBEs receive fair and equitable treatment in DOT-assisted contracts.
If your company needs help with DBE or ACDBE certification, please contact Danielle Dietrich, Esq. at ddietrich@potomaclaw.com or 412-449-9141.
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