Gone are the good old days of wheeling and dealing. If you're working with subcontractors, you need to keep an eye on compliance. It doesn't matter if you're working on federal, state, local or prime contracts – you need to know the legal ramifications of every action, and explain them to your subcontractors.

As a construction contractor, you pay close attention to your local subcontracting community. You need to know where you can get great work done when you need it. You even need to know where you can get cheap work done now and then. You know the subcontractors in your area, but are you familiar with the legal ramifications of working with subcontractors on federal contracts?

Get It Right the First Time

Unless you fancy yourself the center of a federal investigation that could end up costing you millions, it's imperative to stay on top of compliance right from the start. You must employ robust compliance measures when working on any and every government contract.

If you don't, you could find a number of government agencies banging on your door. Just a few of the organizations that deal with subcontractors include:

  • The Small Business Administration (SBA)
  • The Federal Acquisition Regulation (FAR)
  • The U.S. Department of Transportation (DOT)
  •  Disadvantaged Business Enterprise Program (DBE)

While we won't go into all the federal regulations, these agencies enforce (as that would take a number of full-length books), a few examples should help illustrate how these organizations work. Take note that negligence is not punished as severely as purposeful actions. 

Tired Trickery

Nationwide Supply and Fence found themselves in a lot of trouble in 2015. They claimed to have used a DBE-qualified company on a number of federally funded projects. In reality, the company had hired a non-DBE company to supply the materials. Then they directed the DBE company they claimed to be working with to make it seem as though they were providing the materials – not the non-DBE business.

This dog-and-pony show resulted in $1.75 million in fines to settle allegations stemming from the project. In addition, one of Nationwide Supply and Fence's former officers was personally dinged over $350,000 to settle further allegations resulting from the trickery.

Masked Markups

Nationwide wasn't the only company in trouble. Yonkers Contracting in New York found themselves ordered to pay over $2.5 million after they violated a DBE program on a federally funded contract.

The company hired Global Marine Supply to provide steel on a DBE federal contract. Global Marine Supply bought the steel from a non-DBE company, then added a 1% markup and sent it to Yonkers. All the while, Yonkers Contracting knew exactly what Global was doing and had signed off on it.  


As is clear from the above examples, construction contractors can’t afford to ignore subcontracting requirements on federal contracts. If you do so, you could be held accountable for quite a costly sum. Focus on reducing your compliance risk by making sure all subcontractors understand DBE guidelines. 

Have questions about compliance regulations for your business? Contact Skyline Risk Management, Inc. (718) 267-6600 to voice your concerns.