A new legal advisory from the National Association of Wholesaler-Distributors (NAW), Washington, D.C., addresses the issue of distributors that supply products and materials to contractors on public procurement projects funded, at least in part, with government funds and involving Disadvantaged Business Enterprises (DBEs) on these projects. Recent incidents of "DBE fraud" have resulted in Justice Department charges against distributors and/or contractors. Last week Electrical Wholesaling visited with NAW execs at their D.C. offices and the DBE issue was top of mind.
The NAW Legal Brief said in part:
A number of recent Justice Department criminal and civil enforcement actions have involved a scenario where the Contractor -- often after having received the Distributor’s quote and worked out product quality, quantity and logistics -- asks the Distributor (who is not a DBE) to supply product on a public procurement project through a designated DBE as a conduit - rather than have the Distributor sell directly to the Contractor. The Contractor then claims credit for the DBE’s “participation” on the project toward the contract goal. For its role, the DBE receives a small fee for the use of its name and DBE certification. However, DBE utilization is lawful only if the DBE actually performs a “commercially useful function” in the product supply chain.
The Justice Department and other enforcement authorities have challenged these arrangements and charged the Distributor and Contractor with DBE fraud because the designated DBE was a mere “pass-through” entity, and did not perform any commercially useful function. The Distributor may face criminal and/or civil liability for participation in this scheme, even if the DBE has been duly certified by the government as a Disadvantaged Business Enterprise.”
To read the complete NAW Legal Brief click here.