Attorney General Crackdown on DBE/MBE Representations in Subcontracts

Saul Ewing LLP

The Massachusetts Attorney General is taking action to ensure that general contractors working on public construction are complying with state requirements to use DBE/MBE subcontractors.

In August 2015, the Attorney General filed suit against multiple contractors for allegedly violating the Massachusetts False Claims Act by making misrepresentations over their compliance with requirements for working with Minority Business Enterprises (“MBE”), Women Business Enterprises (“WBE”) and/or Disadvantaged Business Enterprises (“DBE”).  The defendant contractors immediately settled for a combined $1.4 million.  See Comm of MA v. CTA Construction Co., Inc. et al., Suffolk Superior Court Civ. Action No. 2015-02491. 

Proposals and contracts with public entities typically require participation goals for a certain percentage of construction work to be completed by MBE, WBE or DBE contractors.  General contractors often have difficulty meeting this requirement, and at times have resorted to using shell companies that are MBE, WBE, or DBE-owned, but which do not actually perform the contracted work.  A key issue often is whether the MBE/WBE/DBE performed a “commercially useful function” or merely was a pass-through.

Here, the Massachusetts Attorney General alleged that a general contracting company hired an alleged MBE contractor to perform certain work, but in fact the MBE had no personnel or equipment to perform work.  The MBE merely was a “front” that did not supervise or perform any work.  The Attorney General sued the general contractor, alleged MBE contractor, and the performing subcontractor for allegedly knowingly violating the Massachusetts False Claims Act by participating in a scheme to mislead and misreport the performance of MBE work.  The alleged false claims involved bidders certificates, letters of intent, schedules of participation, and certificates of compliance.

This case is a reminder to all general contractors that MBE, WBE, and DBE requirements and goals must be strictly and honestly followed.  The hiring of a hollow MBE,WBE, or DBE business that simply is a front and pass-through for others to do work can be a violation of state and/or federal laws.  A general contractor must take active steps to ensure to that their MBE, WBE, and DBE contractors meet the up-front entry requirements and that the contractors continue to meet the requirements throughout a construction project.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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