Section 3: Subcontracting

The
Standard Specifications
 defines a subcontractor as “an individual, partnership, limited liability company, corporation or any combination thereof that the contractor sublets, or proposes to sublet, any portion of a contract, excluding a material supplier, a hauling firm hauling only from a commercial source to the project, truck owner-operator, wholly owned subsidiary, or specialty-type businesses such as security companies and rental companies.”

Subcontract Approval Procedure

In accordance with the
Standard Specification
, Article 8.2, “Subcontracting”, all subcontractors (regardless of the tier) require the Engineer's written approval prior to performing work on a contract. For further guidance, refer to the
Subcontracting and Payroll Requirements
Table (internal access only).
Obtain a signed and completed Form 2802, “Subcontract Request for Approval”, from the Prime Contractor. As a reminder (if applicable):
  • for federally funded projects:
    • Special Provisions and Form FHWA-1273 must be physically incorporated in each construction contract, all subcontracts, and lower-tier subcontracts compensated with federal-aid funds. The contractor signature on Form 2802 certifies that all required SP and FHWA Form 1273 are included in the subcontract.
      • Form FHWA-1273
        , “Required Contract Provisions – Federal-Aid Construction Contracts,”
      • Special Provision
        “Certification of Nondiscrimination in Employment” – include in all subcontracts, at any tier, greater than $10,000.00,
      • Special Provision
        , "Nondiscrimination" (Include provisions of Article 3.1 - 3.6 in all subcontracts and agreements for materials),
      • Special Provision
        , "Cargo Preference Act Requirements in Fedral-Aid Contracts" - include in all subcontracts, and
      • Special Provision
        , “Disadvantaged Business Enterprise in Federal-Aid Contracts” – for projects let after September 2024, include in any subcontract.
    • TxDOT DMS is the departments web-based Compliance Tracking System to be used for DBE reporting. Prime contractor must request to add a subcontractor in TxDOT DMS.
      Neutral DBE's must be entered into TxDOT DMS for DBE reporting as part of the subcontractor approval process.
    • Disadvantaged Business Enterprise/Small Business Enterprise/Historically Underutilized Business (DBE/SBE/HUB) goal credit must be captured, when the subcontractor is classified as a DBE/SBE/HUB. Reference the following:
      • District Disadvantaged Business Enterprise Coordinator Compliance and Monitoring Guide (for projects let prior to Feb. 2017)
      • District Disadvantaged Business Enterprise Coordinator Compliance Monitoring Guide (for projects let Feb. 2017 and thereafter)
      • District Small Business Enterprise Coordinator Standard Operating Procedures (internal access only)
    • As a Best Practice, a Texas Unified Certification Program (TUCP) printout to show, DBE or SBE certification. Ensure date is current in header and footer. The TUCP must be verified for all DBEs,
      both conscious and neutral.
Confirm the following information prior to approval of Form 2802, “Subcontract Request for Approval”:
  • total value of all subcontracted work does not exceed 70% of the original contract value.
  • for federal-aid projects
    verify conscious DBE
     participation on an approved commitment agreement or utilization plan.
    Conscious DBE
     subcontract work item must match the work items in the executed
    commitment agreements
    .
  • the subcontractor is not on the TxDOT or federal list of Debarred/Sanctioned Contractors.
  • the subcontractor is listed on the E-Verify program or has submitted documents for MOU (see E-Verify section below).
  • for substituted DBE subcontractors, the work items must match the executed commitment agreement and substituted form
    .
NOTE:
For non-DBE subcontracts, this will be verified via the subcontract certification monitoring plan below.
Subcontracts are considered approved once the District approval date is entered into SiteManager. File the Subcontractor required documents DBE or Non-DBE (2802, Special Provisions, contracts, etc.) in ProjectWise once approved. Refer to the
SiteManager Contract Administration Manual
and the
Flow Chart Aid
on CST Division webpage (internal access only). Notify the Contractor of such approval by letter or by email in a timely fashion, so as not to create delay impacts to the project.

Subcontractor Audit (Certification Monitoring Plan)

All DBE and one Non-DBE fully executed
subcontract(s)
 are to be collected at the beginning of the project. Request one additional non-DBE fully executed contract for review during each of the audits based on the schedule provided by CST. If there are any concerns, additional subcontracts may be audited. The number of audits does not need to exceed the number of subcontracts.

Subcontracting Limit

Per the
Standard Specification
, Section 8.2.1, “Construction Contracts and Federally Funded Maintenance Contracts”, ensure that the Contractor, including DBE-certified prime contractor, performs at least 30% of the total original contract amount (25% if the Contractor is a Small Business Enterprise on a wholly State- or local-funded Contract), less any specialty items, with the Contractor's own organization. The percentage of work subcontracted is calculated for first-tier subcontractors only; do not apply the subcontracting limitations to second or third-tier subcontractors. All DBEs must self-perform 30% of the work in order to perform a Commercially Useful Function (CUF).
The Contractor’s own organization only includes:
  • workers employed and paid directly by the contractor or wholly owned subsidiary
  • equipment owned by the contractor or wholly owned subsidiary
  • rented or leased equipment operated by the Contractor’s employees or wholly owned subsidiary employees
  • materials incorporated into the work if, the majority of the value of work involved in incorporating the material is performed by the Contractor’s own organization, including a wholly owned subsidiary’s organization
  • labor provided by leasing firms licensed under Chapter 91 of the Texas Labor Code for non-supervisory personnel if the Contractor or wholly owned subsidiary maintains direct control over the activities of the leased employees and includes them in the weekly payrolls (Payrolls may be submitted by either the contractor or the licensed staff leasing firm).
Allow the Contractor to subcontract any specialty items contained in the contract. Specialty items are work items not commonly found in contracts for similar work and may include:
  • removing an underground storage tank on a widening project
  • plumbing on a widening project
  • electronic work on a typical road construction project
  • work designated as specialty work in the contract.
Per the
23 CFR 635.116
“Subcontracting and Contractor Responsibilities”, the Contractor is to perform the work defined in the contract by installing the pay items, not to provide contract administration oversight (which is not a pay item and not part of their contract). The prime contractor must perform at least 30% of the contract work using their own company resources. Mobilization does not count towards performing 30% of the contract.

Non-DBEs

For non-DBEs, when assuring compliance with the 30% contract provision, the Department can perform its monitoring and approve the subcontract based on the total amount of the subcontract. If a question arises regarding the prime contractor performing 30% of the work with their own forces, require additional details from the Contractor, including actual unit prices, to verify contract compliance.

Subcontracts Exceeding 70% of the Total Contract Amount

Do not approve subcontracts, or cumulative subcontracts, that exceed 70% of the total contract amount after deducting the cost of specialty items. Mobilization is not included in the calculation. Refer to the
Standard Specification
 Article 8.2, “Subcontracting”.

Disadvantaged Business Enterprise Requirements

In accordance with the
Standard Specification
, Article 8.2, “Subcontracting”, the Department requires submission of an executed subcontract agreement for all DBE subcontracts, including all tiered DBE subcontracts, with unit prices. Verify that the unit prices are commensurate with the work. The unit prices, however, do not have to be based on bid item units.
DBE subcontracts that the Prime submit with redacted information are not accepable.
For an approved, or an approved substitute, DBE used to meet the goal the subcontract agreement must equal or exceed the commitment/Utilization Plan total dollar amount and the items of work must match.
  • use of joint check(s) requires prior approval by the District DBE Coordinator (DDC). Contractor must complete and forward
    Form 2804
    “Request to Use Joint Checks”, to the AO, which will direct the form to the DDC for review and approval.
  • all DBE forms and documentation must be uploaded to TxDOT DMS.

DBE/SBE Monthly Progress Reports

Refer to the following Civil Rights Division (CIV) Standard Operating Procedures for instructions on processing monthly progress reports.
  • District Disadvantaged Business Enterprise Coordinator Compliance and Monitoring Guide (for projects let prior to Feb. 2017)
  • District Disadvantaged Business Enterprise Coordinator Compliance Monitoring Guide (for projects let Feb. 2017 and thereafter)
  • District Small Business Enterprise Coordinator Standard Operating Procedures
For projects not in the TxDOT DMS, the Contractor completes and submits
Form 4903
, “DBE Monthly Progress Report”, or
Form 4902
, “DBE Prime Contractor Payments to Non-DBE Subcontractors” to the AO.
SBE (State): Use Monthly Progress Reports (
Form SMS.4907
) and Final Report (
Form SMS.4908
). Includes all payments made
to neutral
 DBEs/SBEs/HUBs.
DBE Prime Contractors only: Use
Form SMS.4902
for payments made to non-DBE(s) subcontractors for monthly and final reporting.

Debarred/Sanctioned
 Contractors

Verify the subcontractor is not on the
State of Texas Debarred Vendor list
(Currently debarred/sanctioned contractors) and
SAM.gov (Federal list)
of Debarred/Sanctioned Contractors. Any project where the subcontractor was approved prior to the date of debarment is not affected. A Prime contractor is obligated to finish the job. If a subcontractor is listed as debarred, they cannot be entered as a subcontractor.

E-Verify

Subcontractors must remain active in the Department of Homeland Security's (DHS) E-Verify program during the term of the contract. Check TxDOT’s
list of contractors
for whom CST has confirmed as participation in E-Verify. If a subcontractor does not appear on the TxDOT list complete each of the following.
  • Require
     that the subcontractor submit the appropriate documentation to
    CST_everify@txdot.gov
    prior to allowing the subcontractor to begin work.
  • If the DHS E-Verify Search tool yields results, the employer is verified as participating in E-Verify. Follow your documented process to save a record of your search results.
  • The DHS E-Verify Employer Search does not
     report results for employers of fewer than 5 employees. If the DHS E-Verify search tool does not yield results, it’s because the employer has registered as having fewer than 5 employees or because they have not registered with E-Verify.
  • For
     those employers with no search results, check the
    E-Verify Participants Acknowledged by TxDOT (accept to download the E-Verify list).
     If the employer is on TxDOT's List of Participants that means TxDOT has a fully executed
    Memorandum of Understanding
     (MOU) on file for the employer, indicating they have registered with E-Verify.
  • F
    or those employers with no search results and that do not appear on
    E-Verify Participants Acknowledged by TxDOT, request they
     provide a copy of their fully executed (signed and dated by the employer and by DHS)
    MOU
    .
    How employers obtain a copy of their fully executed MOU:
    • T
      he employer will log into the account =>
      https://www.e-verify.gov/
    • From the
       “Home” page select the down arrow next to
      their employer's name
    • S
      elect “Company Account”, then select “Company Profile”.
    • In
       the “Company Access and MOU” selection, select hyperlink “View Current MOU” located on the bottom of the “My Company Profile” page.
    • Once
       the page has loaded,
      the employer
       may print the page as a PDF file to save your MOU (
      ensure their
       web browser’s pop-up blocker is disabled as this will prevent you from opening
      their
       company’s MOU).
  • For employers
     that are not on
    E-Verify Participants Acknowledge by TxDOT
     and need to register with DHS, refer the employers to the following:
    https://www.e-verify.gov/employers
  • Fully executed MOU's are to be emailed to
    CST_everify@txdot.gov
    . CST will review the MOU's to ensure they're fully executed and will then add the employer to the E-Verify Participants Acknowledged by TxDOT.
  • Contractors must remain active with E-Verify registration for the term of the contract. Subcontractors must remain active with E-Verify registration until their work is complete on the project. Regularly scheduled verification of the employer's registration with E-Verify should occur and is
     accomplished following the aforementioned steps.

Requirements to be added to TxDOT's List of Participants (effective 3/10/2023):

  • the request should come from the TxDOT District in which the project is
    located
    .
  • It is the responsibility of the (TxDOT District office [Area Office]) to ensure an employer is set up in the internal TxDOT system* prior to E-Verification submittal to =>
    CST_everify@txdot.gov
    .
  • The
     Em
    ployer's
     name on
    the
     fully executed (digitally signed and digitally dated by employer and DHS)
    MOU
     must be relatively similar to the name in the internal TxDOT system. *
  • E-Verify Participants Acknowledged by TxDOT
     serves only the purpose of
    reconciling
     the name
    (as the MOU reflects) in DHS
     with the name in the internal TxDOT system *.
*Internal TxDOT system refers to
APVM
 (where Subcontractor setup resides).