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Section 3: Subcontracting

The Standard Specifications define 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.”

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Subcontract Approval Procedure

In accordance with 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):

Confirm the following information prior to approval of Form 2802, “Subcontract Request for Approval”:

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  • Total value of all subcontracted work does not exceed 70% of the original contract value.
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  • For federal-aid projects verify race conscious DBE participation on an approved commitment agreement or utilization plan. Race conscious DBE subcontract work item must match the work items in the executed commitment agreements including substitutions. Verify race neutral DBE participation.
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  • The subcontractor is not on the TxDOT or federal list of Debarred/Sanctioned Contractors.
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  • The subcontractor is listed on the E-Verify program or has submitted documents for MOU (see E-Verify section below).
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  • On federal-aid projects

    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. 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.

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Subcontractor Audit (Certification Monitoring Plan)

All DBE and one Non-DBE fully executed contract(s) are to be collected at the beginning of the project. Request one additional Non-DBE fully executed contract to be reviewed during each of the 30, 60 and 90 project reviews. If there are any concerns, additional subcontracts may be audited. The number of audits does not need to exceed the number of subcontracts.

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Subcontracting Limit

Per Article 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:

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  • workers employed and paid directly by the contractor or wholly owned subsidiary
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  • equipment owned by the contractor or wholly owned subsidiary
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  • rented or leased equipment operated by the Contractor’s employees or wholly owned subsidiary employees
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  • 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
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  • 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:

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.

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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.

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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. Notify the District Construction Office of any subcontract rejections. If the reduction or elimination of work quantities being performed by the prime contractor’s organization results in the subcontracted amount exceeding 70%, no action is needed. If the overrun, increase, or addition of work quantities being performed by a subcontractor's organization results in the subcontracted amount exceeding 70%, no action is needed. However, new subcontractors will require approval to perform additional work. In either instance, the intent of Standard Specification Article 8.2.1 is satisfied.

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Disadvantaged Business Enterprise Requirements

In accordance with 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.

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.

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DBE/SBE Monthly Progress Reports

Refer to the following Civil Rights Division (CIV) Standard Operating Procedures for instructions on processing monthly progress reports.

For projects not in the Diversity Management System (DMS), complete and file Form 4903, “DBE Monthly Progress Report,” or Form 4902, “DBE Prime Contractor Payments to Non-DBE Subcontractors.”

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Sanctioned/Debarred Contractors

Verify the subcontractor is not on the TxDOT list or SAM.gov (Federal list) of Debarred/Sanctioned Contractors. Any project where the subcontractor was approved prior to the date of debarment is not affected.

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E-Verify

Subcontractors must remain active in the Department of Homeland Security's (DHS) E-Verify program until their work is completed. Check TxDOT’s list of contractors for whom CST has confirmed participation in E-Verify.

Instructions to access list of E-Verify Participants:

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  • Access the DHS E-Verify Search tool: https://www.e-verify.gov/about-e-verify/e-verify-data/how-to-find-participating-employers
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  • If the DHS E-Verify Search tool yields results, then the employer is verified as participating in E-Verify. Follow your documented process to save a record of your search results.
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  • The DHS system 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.
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  • For those employers with no search results, check the List of Participants (second tab below entitled “List of Participants”). If the employer is on TxDOT's List of Participants that means TxDOT has a fully executed MOU on file for the employer, indicating they have registered with E-Verify.
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  • For those employers with no search results and that do not appear on TxDOT's List of Participants, request that they provide a copy of their fully executed (signed and dated by the employer and by DHS) Memorandum of Understanding (MOU).

    How employers obtain a copy of their fully executed MOU:

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    • The employer will log into the account => https://www.e-verify.gov/
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    • From “Home” page select the down arrow next to your name
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    • Select “Company Account”, then select “Company Profile”
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    • In the “Company Access and MOU” selection, select hyperlink “View Current MOU” located on the bottom of the “My Company Profile” page
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    • Once the page has loaded, you may print the page as a PDF file to save your MOU (Ensure your web browser’s pop-up blocker is disabled as this will prevent you from opening your company’s MOU).
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  • For those employers that are not on TxDOT's List of Participants and need to register with DHS, refer the employers to the following: https://www.e-verify.gov/employers
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  • Once the employer provides their fully executed MOU, coordinate with the District for the District to email the MOU to the following email and the employer will be added to TxDOT's list: CST_everify@txdot.gov
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  • Contractors and Subcontractors must remain active with E-Verify registration for the life of the contract so regularly scheduled verification of the employer's registration with E-Verify should occur. This again accomplished following the aforementioned steps.
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Requirements to be added to TxDOT's List of Participants (effective 3/10/2023):

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  • The request should come from the TxDOT District in which the project is associated with.
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  • 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
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  • Employer name on fully executed (digitally signed and digitally dated by employer and by DHS) Memorandum of Understanding (MOU) must be relatively similar to the name in the internal TxDOT system*.
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  • TxDOT's List of Participants serves only the purpose of “marrying up” the name in DHS (as the MOU reflects) with the name in the internal TxDOT system *.

    *Internal TxDOT system refers to SMS (where Subcontractor setup resides).

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