Advantages and Disadvantages of a DBE 6

[structuralengr89]

As the title implies, what are the advantages and disadvantages of a DBE?

I'm currently a small structural firm in the U.S. and have entertained the idea of bringing in a partner (a minority) who would have 51% of the business. On some large projects (Federal Government, State DOT, Large Commercial) I often see questions regarding if my firm is a DBE or not. I have not considered this previously because I have wanted owners to hire my firm because of it's abilities and not a quota.

Is it advantageous from a profitability standpoint for a business to be a DBE or not? I am not interested in a debate on the social issues.

Thanks

 

[NorthCivil]

Disgusting way to approach finding a business partner IMO. There should be a thousand things to consider about a person prior to partnering up with them before their ethnicity.

Good luck

 

[structuralengr89]

I'm not interested in your feelings/emotions. I asked a straight forward question regarding profitability of a DBE.


I've known my potential business partner for 20+ years and we are good friends. His engineering abilities are outstanding and would have him as a partner regardless of DBE status.

 

[NorthCivil]

It's not about feelings/emotions (much less my own), but more about ethics and upholding the dignity of our profession.

I know in the US, there is FE exams, professional exams, several technical exams you must pass on your way to licensure. In Canada, the only exams are on ethics. I think most grey areas in our profession, you can always approach the question from an ethics standpoint and arrive at a suitable answer.

Not sure if your locale has something similar, but here is the main document governing the profession in my locale.

https://www.apeg.bc.ca/getmedia/e8d858f5-e175-4536-8834-34a383671c13/APEGBC-Code-of-Ethics.pdf.aspx

these doc's are pretty similar from board to board, I believe.

 

[IRstuff]

Ignoring the ethics and optics for the nonce

> If you aren't profitable without the partner, this isn't going to help, as you now have two partners to feed.
> Your ability to charge more is limited by the fact that you are hardly the first person to contemplate this.
> There's bound to be more paperwork involved, so you'd probably need to add a body to deal with that.

TTFN (ta ta for now)
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[cvg]

its definitely advantageous if you are working in the public sector in the US. you should qualify for both small and minority business enterprise SBE/MBE which most public agencies that receive federal funding are required to contract with. This may give you a significant leg up on public contracts, generally as a subconsultant.

If you are not working in public works, than no particular advantage except for the fact that there will be two of you marketing and completing the work.

 

[CWB1]

I cannot comment as to the profitability of individual projects however friends at firms who have gone this route claim that it is often a deciding factor in how state bids are awarded.

 

[SwinnyGG]

I think some people need to slow down and take a breath here..

Sounds to me like OP knows a guy, is considering taking him on as a partner, and is just wondering if DBE status would be an additional benefit to the partnership. Relax.

WRT profitability... I suspect DBE status will be a benefit to the percentage of bids won vs. RFQs submitted, but that doesn't inherently mean more profitability unless your business practices are tight. More projects means more revenue, but a partner means more overhead. The only one who can accurately estimate which side of that equation is heavier is you.

 

[IRstuff]

Federal contracts used to have "set-asides" for DBEs, but you'd be competing against companies that potentially have much lower rate structures.

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[Terratek]

DBE gives you an edge in competition for public work. But I wouldn't want to give up control of my company for that edge. Small business status is much less important than minority or woman owned business in terms of priority to government contracts. You might compete against other companies with lower rate structures, but the professional procurement act also states that your company must be selected on qualifications for publicly funded work. This means that fees are not discussed until after the selection is made which tends to result in higher fees. You won't be able to gouge, but you should be able to get much better than cut-throat rates. A truly qualified DBE can get excellent pay from public projects because so many of them (ahem) suck at the work they do.

Although I would game it if I could, I despise the quota system for public work. It often results in the same old big companies getting projects so long as they fill a quota for percent of work subbed out to "disadvantaged" firms. There are also "mentor-protege" programs which are basically a way for non DBE firms to use DBE firms as a conduit to get the work. In a down economy, you see a lot of weird stuff happening on public projects and usually issues arise from incompetent DBE firms gumming up the works due to the requirement they be there. So, there are ways to get into the DBE game without being a DBE, but usually only the really big companies with proven resources get projects big enough to leverage the system without being DBE. Of course, there is so much procedure and slow pay with public projects, the smaller projects are hardly worth pursuing a lot of times.

 

[IRstuff]

I wouldn't necessarily count on cost blindness as a given. The government and its various minions flip-flop on the subject routinely. "Cost realism" and "Life Cycle Cost" were two approaches that have littered the procurement landscape over the years in an attempt to rein in technically superior proposals from companies that couldn't manage costs out of a wet paper bag. One aerospace company has had at least two major contract failures where their supposedly superior systems engineering and process crashed and burned against their inability to contain requirements, subcontract(or)s, and costs.

Given the current administration's stated desire to contain costs, I would expect another major push for cost realism or life cycle cost as an evaluation criteria. Most procurements that I've been involved in simply split the proposal and have different people evaluate the technical and cost. However, at the end of that, they still get together and still consider the cost.

If your proposed effort is too expensive, it doesn't matter whether you're the best or the most disadvantaged; large procurements have their budgets cast in concrete well in advance of the RFP.

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[Terratek]

I'm not saying high fees are guaranteed, but it is much more likely than cut-throat cost bidding. This is my experience with civil projects. Public officials can flip flop all they want, but they must obey the law. The procurement act is the LAW. Yes, shady stuff happens and yes they can end negotiations after a selection has been made and start over. However, if you fees are reasonable, if even slightly high, they will most likely stay with the initial section vs. starting over. I can't speak at all for aerospace. That landscape may be totally different.

I doubt the current administration has the wherewithal to change the current law. They don't seem to be able to do much of anything other than garner news coverage. But that's fine with me. I don't yearn for more and more laws to be made and changed which is all an active administration would cause to happen.

 

[JStephen]

And what, exactly, would be the advantage to the proposed partner to work this way?

 

[bridgebuster]

I don't want to sound like a cynic but DBE's are a cottage industry of sorts. In the bridge business we have to have them and we rely on certain firms to fulfill the goal. If you're reliable and can get the job done firms will seek you out. Some DBE firms are content to remain so because they're more or less assured of steady revenue. Keep in mind, no one is guaranteed anything and if the markets take a downward turn, everyone is affected by it. I know of one firm that actually graduated from DBE status because that was the owner's intent. Keep in mind you have to stay below the three-year revenue amount or you're out. In some states the principals can wear multiple hats, i.e., the salaries for officers of the company get figured into the overhead rate. You can be fully billable collecting a salary against a project then collect a second (possibly third) salary through overhead, and finally you get a share of the profits.

Back to your question, it's advantageous from a revenue standpoint assuming you're content with say $7.5 million per year in billings.

 

[spieng89]

I think it's a great idea as long as you trust the potential partner and have a sound business plan to submit more bids that you would now be eligible for... and to put in my two cents on the idea of a quota system...it's a necessary system. In my experience, many private sector jobs (which may not require small/minority firm inclusion) tend to hire firms based on the "good ol' boy network" and not necessarily the best qualified firm. I find that often, many firms are disillusioned in thinking they win work based solely off their own merits and not because the client feels comfortable with them based on surface preferences i.e. older white males (in America) typically have a leg up as developers tend to be older white males based on America's social history. Human nature subconsciously influences people to feel comfortable and trust those who look like them. Doesn't have to be malicious intent. Women and minorities are on the rise though. I suspect in another 50-100 years a quota system won't be necessary as there will be a more diversified system of decision makers in place. Make no mistake, there will still be favoritism at that point based on superficial preferences due to human nature, but at least it won't be one-sided toward one particular demographic.

 

[Terratek]

raspivey,

Perhaps there could be some validity to your statement if it weren't for the fact that most of the DBE firms I know of have old white guys making the contacts and acting as the "face" of the company while the name of the company is some ambiguous three letter acronym. How does that work with your theory of comfort level or "looking like them"? I'm not saying racism is dead, but this isn't the way to fix it.

Minorities in a situation where they own an engineering firm are already "privileged" in terms of social equity.

 

[spieng89]

Terratek,

Do you realize you prove my statement and also at the same time come off sounding a bit ignorant (racial tone) i.e. stating old white males are the "face" of these companies and (this part is inferred) the only reason they can operate and get contacts. You do realize white male privilege exists correct? And no... one doesn't have to bathe in racism to enjoy white privilege. It's an underlying effect from centuries of oppression. Most white males are not racists just like most everyone, but due to a system of norms that has been established going back centuries white males benefit more from the "system" currently in place in America. You can act like you don't see it or don't benefit from it (assuming you are a white male) all you want, but it doesn't erase the fact you get a leg up in life in certain situations. And before you jump on a structurally weak soapbox stating your accomplishments you by yourself accomplished, realize there is also Hispanic privilege, female privilege, Asian privilege (especially doing business in China...just ask Uber)...but in America white male privilege is the dominant force underrepresented minorities must deal with in the engineering/construction industry.

 

[structuralengr89]

Thanks everyone for your posts! Lot of good information I'll need to consider.

Thanks again!

 

[morgwreck243]

With my employer we are DBE (classified as 8a). Our main clients are government agencies. Being an 8a / DBE does keep us in a smaller pool of candidates for work. Thus, we are not cutting our wrists to get the job.

I would say that if you go this route you should be ready to do perform the work the way the government wants it done (aka Paperwork, paperwork, paperwork). Paperwork is part of the deal and you should just go in knowing that's part of the cost of doing business with them.

As others have mentioned, we have been selling ourselves with the big boys (ch2m, Bechtel, Fluor, etc.) on getting part of the pie. Like anything else you have to sell yourself to others. In this case you are selling yourself so that they can meet the govt's goals / quotas / set-a-sides. As long as you perform well, then you can use this as a steady source of revenue.

--morgwreck243

 

[kmart30]

Cons:loads of paper work, receivables 90 plus days out, cook book engineering, waiting forever to start a project, state reviewers red lining everything, primes selecting you only because they have to, endless pre-bid meetings, value engineering is non existent, etc. etc.

Pros: You get to tell your friends you designed the bridge/road around the corner.


Sorry never really had good experiences with public work but I'm sure others have. Good luck!