DOT’s Disadvantaged Business Enterprise Rulemaking on Prompt Payment and Retainage Monitoring

On Thursday, July 21, 2022, the U.S. Department of Transportation announced their upcoming Disadvantaged Business Enterprise (DBE) Rulemaking on Prompt Payment and Retainage Monitoring. The Department specified the need for recipients to create a mechanism to affirmatively monitor a contractor's compliance with subcontractor prompt payment and return of retainage requirements, and that a recipient's reliance on complaints or notifications from subcontractors is insufficient. In 2020, the Federal Highway Administration (FHWA) performed a national review on recipient compliance with prompt payment and return of retainage compliance. The review found most recipients are not affirmatively monitoring subcontractor payments on FHWA-assisted projects. Many recipients wait for subcontractor payment complaints or other notification of non-payment before taking any action.

Per the Department, “including in this regulatory section a specific reference to the need for affirmative monitoring of subcontractor prompt payment and return of retainage by the recipient will reinforce the Department's position on this matter. This revision also makes clear that the requirements within this rule are intended to flow down to all lower tier subcontractors.  Your DBE program must include the mechanisms you will use for proactive monitoring and oversight of a prime contractor's compliance with subcontractor prompt payment and return of retainage requirements. Reliance on complaints or notifications from subcontractors about a contractor's failure to comply with prompt payment and retainage requirements is not a sufficient monitoring and oversight mechanism. Your DBE program must provide appropriate means to enforce the postponement of payment among the parties may take place only for good cause, with your prior written approval.”