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Low bidder denied project after listed DVBE subcontractor found lacking a "commercially useful function"

General contractor C.C. Meyers, Inc. was awarded a Caltrans project to improve a highway in Glendale. Meyers was given a credit in its bid for listing a Disabled Veteran Business Enterprise ("DVBE"), Sam's Equipment and Supplies ("Sam's"). Sam's was to furnish concrete base material. Without the credit, Meyers would not have been the low bidder.

The DVBE program is designed to benefit qualified disabled veterans and their businesses by giving them preferences in state contracting. It works, partly, by offering incentives for prime contract bidders to list and use DVBE certified business. To ensure the listing of a DVBE is in good faith, the bidder and DVBE business must show the veteran owned business will serve a "commercially useful function" on the project

Sam's completed a Caltran's "Commercially Useful Function Questionnaire", which revealed Sam's limited role on the project. With respect to what material or services it intended to provide, Sam's answered, "We will provide base rock material delivered to the jobsite." In describing the process it intended to use to provide the aggregate base material, Sam's wrote that "We will order, purchase, set up quantities, time and dates of deliveries. Once delivered we will invoice [appellant] for materials delivered." With respect to invoices, Sam's stated that it would be invoiced from its supplier and would, in turn, invoice Meyers.

Addressing questions related to the delivery of the aggregate base material, Sam's responded: "Based on the contractor's schedule of the material, we will schedule and coordinate the quantity, date, time and location of delivery with our supplier. We will track the progress throughout the delivery." Sam's further stated that its supplier would select, supervise, manage and pay its own trucking operators to deliver the material.

Based on this information Caltrans determined that Sam's was not going to provide a commercially useful function on the project, and rescinded the DBVE credit to Meyers and award the project to the second-low bidder. Caltrans' decision focused on the fact that Sam's was not to perform any of the trucking services, thereby limiting its role - essentially - to an unnecessary middle-man relative to the purchase of the base material itself.

Meyers protested this decision (the protest was denied), and then sought a court order to get back the project. The trial court denied Meyers' requests, and it appealed.

The Second District of Court of Appeal recently rendered its decision on the case, affirming the trial court's decision that Meyers had no remedy. The court held that,

"Sam's owned none of the materials that would be used on the Project and did not intend to select, pay for, supervise or manage the trucking operators that would be delivering the aggregate base to the Project site. Substantial evidence supported Caltrans' conclusion that Sam's was not performing a commercially useful function on this Project."

This decision affirms that public owners and courts will scrutinize the activities of DVBE businesses (and their prime contractor partners) to ensure the credibility of such programs.

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