Companion Guide to Video December 2014

www.fhwa.dot.gov/federal-aidessentials

A prime contractor can subcontract work to 

disadvantaged business enterprises, or 

DBEs, to meet an agency's goal of DBE 

participation on federally funded contracts. 

For the contractor to count the DBE firm's 

work toward the goal, the DBE firm must 

serve what's called a commercially useful 

function or CUF. 

This means that the DBE firm has a 

necessary and useful role in the project. For 

example, the firm must manage and 

perform the work, supervise the employees, 

and supply the equipment and materials. 

If the firm serves only to provide the 

appearance of DBE participation, the work 

is not a commercially useful function and 

cannot count toward a DBE goal. Agencies 

that receive federal funds are required to 

ensure that DBEs are performing a CUF 

through evaluation activities. 

Let's look at the three primary activities in 

every evaluation. The first activity is a 

review of the agreements between the 

agency and the prime contractor, and 

between the prime contractor and any DBE 

subcontractor. 

Civil Rights

Disadvantaged Business Enterprise

Evaluating a Commercially Useful Function (CUF)

To meet disadvantage business enterprise (DBE) goals, you must verify that 

a DBE firm has a necessary and useful role in the project
Federal-aid Essentials for Local Public Agencies

An agency employee reviews these 

agreements to identify the DBE firms the 

contractor has committed to use and to 

become familiar with each DBE firm's scope 

of work. 

Next, an agency employee inspects the job 

site to check that the DBE firm is performing

and managing the work. The inspector's 

activities include making general 

observations and interviewing DBE 

personnel. 

For example, the agency employee might 

ask the DBE's supervisors, workers, and 

equipment operators: "Who do you report 

to?" and "Who signs your paychecks?" They 

might also confirm that the DBE firm’s logo 

is on the equipment. 

Lastly, an agency employee reviews 

project-related documents such as payroll, 

invoices, and delivery tickets. This verifies 

who is paying employees as well as 

ordering and paying for materials. 

In practice DBEs are classified as

contractors, truckers, regular dealers, or 

manufacturers. Let's follow along as an

agency employee evaluates a CUF for

contractor. In our example, the DBE firm, 

Quality Curbs, is charged with constructing 

cub and gutter. 

Early in the project the agency's project 

manager reviews the prime contract and the 

subcontract and verifies that Quality Curbs 

appears in the prime contractor's DBE list 

and will be paid $200,000 to construct curb 

and gutter. According to the agreement, 

Quality Curbs will provide all equipment and 

personnel and a supervisor will be present 

on site. 
Federal-aid Essentials for Local Public Agencies

While at the job site, the project manager 

talks with the Quality Curb supervisor and 

records in the project diary that the 

supervisor is knowledgeable about the 

project and schedule. The project manager 

observes that a piece of equipment used to 

construct the curbs and gutters does not 

belong to Quality Curbs. He notes this in his 

diary for follow-up. The project manager 

does a field records review, inspecting 

invoices and delivery tickets, and verifying 

that Quality Curbs bought the concrete and 

other materials. The project manager 

documents these results in the project diary. 

Additionally, the project manager inspects 

the payrolls of the prime and all 

subcontractors to identify employee names 

and to verify that employees constructing 

the curbs are on Quality Curbs' payroll. 

During this activity, the project manager 

finds one worker who appears on two 

payrolls, both the prime's and Quality 

Curbs'. He notes in his diary to follow up on 

this discrepancy. 

Before confirming that Quality Curbs is 

performing a CUF, the project manager 

needs to check why he observed the 

equipment of another company on the job 

site and why one worker appears on the 

payroll of both the prime and the DBE firm. 

In a follow-up discussion with the Quality 

Curb supervisor the project manager learns 

that the equipment he saw was leased while 

Quality Curbs' equipment underwent 

repairs. 

He also learns that the prime contractor's 

worker was on loan for two days to cover for 

a sick employee and that agency personnel 

had approved this temporary arrangement. 

With all questions satisfied, the project 

manager certifies in writing that Quality 

Curbs manages and performs the work 

using its own employees, provides all 

necessary equipment, and supplies the 

materials. 

Had the agency determined the DBE was 

not providing a CUF, corrective action would 

be necessary to meet contract requirements 

and maintain federal funding. 
Federal-aid Essentials for Local Public Agencies

As our example illustrates, agencies must 

regularly monitor contract activity, follow up 

when questions arise, and certify in writing 

that DBE firms are performing a 

commercially useful function.

The documents your agency gathers during 

your review are used to support the required 

written certification and any necessary 

compliance and enforcement actions. You 

can find links to additional tips and 

checklists for evaluating a CUF on the 

Federal-aid Essentials website.
Federal-aid Essentials for Local Public Agencies

The content of this 

document is not a 

substitute for 

information obtained 

from State departments 

of transportation, 

appropriate FHWA 

Division Offices, and 

applicable laws. 

Scenarios have been 

simplified for emphasis 

and do not necessarily 

reflect the actual range of 

requirements applicable 

to the scenario or this 

topic. This document

was created under 

contract number 

DTFH63-11-F-00066 by 

the Federal Highway 

Administration, U.S. 

Department of 

Transportation, and is 

offered to the public to 

heighten and focus 

awareness of Federal-aid 

requirements within the 

local public agencies 

community and 

reinforces the 

importance of these 

necessary policies, 

procedures, and 

practices.

This Companion Resource 

is the script content for 

the video production of 

the same name. 

Additional Resources

• Link to electronic version of Disadvantage Business Enterprise 

regulations for 49 CFR Part 26

http://www.ecfr.gov/cgi-bin/textidx?c=ecfr;sid=92d9b02a789cc3908c21c7fde2363b70;rgn=div5;view=tex

t;node=49%3a1.0.1.1.20;idno=49;cc=ecfr

• Official questions and answers covering Disadvantage Business 

Enterprise regulations for 49 CFR Part 26

http://www.dot.gov/osdbu/disadvantaged-business-enterprise/officialquestions-and-answers-26

• FHWA tips on evaluating a commercially useful function

http://www.fhwa.dot.gov/federal-aidessentials/commusefunction.pdf