Minority Contractors Vie For Bigger Piece of the Pie

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Nearly two years ago, the city pledged to make its contracting process more open to businesses owned by women and minorities, which have long been underrepresented in city procurement. Local Law 129, signed by Mayor Bloomberg in Dec. 2005, set targets for each agency on contracts awarded to qualified women and minority bidders, based on the share of the market that those firms represent. Despite this important step, advocates say New York still has a long way to go before the city’s vendors fully reflect the diversity of its people.

New York City businesses owned by women or minorities historically have won a smaller share of city contracts relative to their share of the market than companies with white male owners. More than 56 percent of the market’s construction firms are minority- or women-owned, for example, but those companies won just 28 percent of prime construction contracts between 1997 and 2002 – missing out on $440 million worth of work – according to a 2005 analysis commissioned by the city.

The study, by the research firm Mason Tillman Associates in Oakland, Ca., found disparities in public contract awards across nearly every sector researchers examined, for both prime and subcontracts. The law requires such research before governments can set goals for awards to minority- and women-owned business enterprises, known as MWBEs.

Authors of the 294-page report took pains to make sure the disparity didn’t simply reflect that MWBEs might be less equipped to take on public contracts. Researchers examined companies “willing and able” to take on contracts: firms that had expressed interest in selling to the city and had the capacity to do so. More than 90 percent of the city’s contracts are worth less than $25,000, and the report excluded awards above $1 million. “The fact that the majority of the City’s contracts are small suggests that the capacity needed to perform most of the contracts awarded during the study period was minimal. Furthermore, evidence is substantial that willing firms have the capacity to perform contracts in excess of the $1,000,000 level,” the report found.

In fact, says Marla G. Simpson, director of the Mayor’s Office of Contract Services, a new disparity study now in the works might end up documenting just that. In fiscal 2007, MWBEs captured 7 percent of all city money spent on contracts – but if MWBE capacity can be certified at, say, $3 million, “that would roughly double the size of the program,” Simpson says.

Over the year the new law has been in effect, “the program has had some modest successes,” she said. But given the existing capacity cap on participation, “It’s understandable that the advocacy community is not satisfied with that.”

Roughly $15.7 billion in city money flowed back to the private sector in the 2007 fiscal year, according to city procurement data. The purchases cover everything from paving roads and building playgrounds to buying paperclips and toilet paper. With that much money – roughly equal to the gross domestic product of Iceland – flowing from the public to private sector each year, access to the public market can determine whether businesses owned by women or minorities grow or fail.

“The programs that are set up are very, very helpful in that the door is open for firms that perhaps would never have the opportunity to work on major public projects,” says Sandra Wilkin, president of construction management firm Bradford Construction. But Wilkin, who is also president of the Women Builders Council, says further steps are needed. “There are barriers, in particular barriers with insurance, barriers with financing, barriers with bonding, that make it very, very difficult for small firms to expand in the New York market,” she says.

Smaller companies, particularly those that have not worked on public contracts before, can have trouble getting the insurance or surety bonds required to work on public contracts. Such measures protect the agency in case the contractor defaults on the job. While all small firms face those problems, some say the obstacles are compounded for minority-owned companies. “There’s still systemic racism. People like to do business with people who look like themselves, period,” says Gina Hill Slater Parker, president and CEO of the Long Island-based nonprofit Black Women Enterprises. The group was founded in 1993 to expand access to procurement. “If that wasn’t an issue, we wouldn’t have disparity studies and we wouldn’t need any of these programs,” Parker says.

Advocates credit Bloomberg for taking action. The city’s first program to help MWBEs win public contracts began during the Dinkins administration, but expired in 1998 under Mayor Rudy Giuliani. Bloomberg and City Council revived the program in 2005 with Local Law 129, which sets citywide goals for diversifying contract awards and boosts efforts to prepare MWBEs to bid.

The law sets targets for contracting with MWBEs, divided by sector (such as construction or professional services) and race or gender group. The goals range from 5 percent to about 18 percent, depending on the industry and the race and gender characteristics of the business. The targets are based on the findings of the 2005 disparity study. The law also sets a blanket goal to award 6 percent of contracts to “emerging businesses,” regardless of owners’ gender or race.

The law took effect in July 2006, and the city says it is showing early signs of progress. MWBEs assisted by the Department of Small Business Services landed $55 million in contracts in fiscal 2006, a figure that doubled to $110 million in the following fiscal year, according to SBS spokeswoman Kara Alaimo. “Our nascent program is rapidly growing, and we expect these figures to increase as more businesses certify and take advantage of the new programs and services that we are rolling out,” Alaimo wrote in an e-mail, noting that certification rates are up sharply.

But setting goals alone won’t address contracting disparities without proper enforcement, some advocates say. The biggest problem arises when prime contractors fail to allot the required portions of their subcontracts to MWBEs. “There’s no teeth in it,” says Parker. “They have become experts at undermining the integrity of the law.” Parker says prime contractors should have to identify specific MWBE firms they intend to use during the bidding process, rather than after the contract is awarded.

That’s not always an option for prime contractors. Joe Hogan, assistant executive director of the General Building Contractors of New York State, says sometimes prime contracts are waiting on quotes from subs just minutes before the bidding process begins. But Hogan doesn’t defend contractors who flout the law. “In general, if I say I’m going to use this contractor and I don’t … they should be at that point in time in default of contract,” he says. “Does that mean you cancel the contract all together? That may depend on where you are on the project and whether that’s practical.”

Hogan considers the laws governing MWBE contracts, which his organization helped draft at the state level, to be generally fair. “The biggest area that needs a lot more work is the development and support of the businesses,” he says, suggesting improving rates of MWBE contracting by encouraging “mentor-protégé relationships” with prime contractors, as well as forming joint ventures to work on projects.

“Construction is a tough business, and there’s a lot of turnover of companies. There needs to be a lot more mentoring that’s done to help develop those communities,” Hogan said.

Even with the targets in place, the city’s hands are tied to some extent. The U.S. Supreme Court has found that “setting aside” contracts for MWBEs violates the equal protection clause of the Constitution. By state law, contracts in New York are awarded by competitive sealed bids, with the lowest qualified bidder winning. To make the awards better represent the diversity of New York’s economy, the city must get more businesses certified as MWBEs and prepare them to bid competitively.

Councilwoman Letitia James, a Brooklyn Democrat and chairwoman of the contracts committee, says the state law governing the bidding process is the biggest obstacle to leveling the field. “Agencies have to go with the lowest responsible bidder,” she says. “We could change the definition of ‘responsible’ to include consideration for women and minorities.”

James said city agencies “got a bad report card” for missing the targets of Local Law 129, particularly for contracts worth more than $100,000. But she said the law is still relatively new, and not enough businesses are certified.

Certification is a time-consuming process. Preparing the required paperwork – including financial statements, tax returns, bank documents and proof of insurance, among others – can take two weeks of working full-time, according to Quenia Abreu, president of the New York Women’s Chamber of Commerce. That’s no small cost for busy entrepreneurs who often wear many hats in their companies. Abreu credits the city for making certifications valid for five years instead of just two, and for streamlining the process. For example, companies already MWBE-certified with state authorities can get a “fast track” certification by the city, valid for one year.

But businesses that have hit a wall in the past attempting to win public contracts may decide it’s not worth the time to get recertified. “There’s still not enough companies certified,” Abreu says, although she praises the city for renewing interest and partnering with organizations like the New York Women’s Chamber to reach out to business owners. About 1,700 firms are certified as minority- or women-owned on the city’s vendor list. In the fiscal year that ended in June, 452 businesses registered, and this year the city is 76 percent ahead of that rate, according to Alaimo, the small business services spokeswoman.

Not everyone blames the government for the disparities. Some advocates say that with goals in place, potential contractors must now shoulder the burden. “Really this is not an easy process, but then again nobody said that New York is an easy place to do business,” says Maria Alvarez Castro, president of the Manhattan Hispanic Chamber of Commerce. Her organization is focusing on helping MWBEs get certified and prepared to bid competitively. “I feel that the fallout or the setback has been the fact that the law is just brand new and not everybody knows about this,” Castro says.

If the city succeeds, its efforts to close the gap in MWBE contracting should benefit more than just the companies involved. Advocates say ending discrimination in contracting would make procurement more competitive, saving the city money. Reducing the disparity would also benefit communities beyond the business world.

“Minority businesses generally have a higher rate of hiring more minorities, so it benefits the economy and it benefits those particular communities,” say Leonard Baynes, director of the Ronald H. Brown Center for Civil Rights and Economic Development at St. John’s University law school in Queens. “As the city and state become more diverse … that becomes really, really important to develop those sectors of the economy, so that overall everybody’s doing better.”

This story has been updated. 12/4/07

– John Tozzi

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