Deputy Mayor Cas Holloway, seen here testifying more recently, revealed the results of a 2011 disparity study in written submissions to the Council in 2012.

Photo by: William Alatriste (Official NYC Council Photo)

Deputy Mayor Cas Holloway, seen here testifying more recently, revealed the results of a 2011 disparity study in written submissions to the Council in 2012.

The task facing New York City’s M/WBE program is considerable.

Because state law mandates that government contracts go to the lowest responsible bidder, the city cannot simply award more contracts to M/WBEs. So it has to create an environment where disadvantaged businesses can bid competitively.

In the early years of the program, the city focused on outreach and certification—merely getting M/WBE firms to sign up and demonstrate that they qualify for city work. Certification is voluntary and since only businesses that choose to certify with the city count toward participation goals, the city has tried to encourage every minority and woman who does contracting work for the city to certify.

“Under Mayor Bloomberg, the city has increased the number of certified firms from 700 to more than 3,800, and SBS continues to work hard to encourage more firms to certify and enroll in the city’s M/WBE program because a robust supply chain of competitive bidders is essential to the program’s success,” wrote Anne Rascon, deputy commissioner at the Department of Small Business Services, in response to questions about the program.

More recently, under an initiative called Compete to Win, the city has created mentoring programs and offered classes to help certified business owners overcome obstacles and win bids.

There have been success stories. Stacy Seecharan is one. Seecharan, a black woman, started B & S Iron Works in the Bronx in 2003 and she said about 80 percent of her more than $1 million annual revenue comes from government contracts. She also said the programs the city runs to help certified business owners have helped her tremendously.

“I have everything good to say,” she said. “They’ve always supported me. They have a system where I can call up, they give me answers.”

Other certified business owners interviewed said they still had problems getting city jobs because of obstacles like surety bonding (insurance that protects the customer if a contractor fails to complete a job), lack of access to capital, insurance and lack of union affiliation. Many complained the city was still not doing enough to help and that the classes are at inconvenient times far away in Manhattan.

(See full statistics on the city’s MWBE performance here.)

Samuel Gbajumo, a black man who owns Diamond Security Services, says he’s had trouble getting big contracts because his company does not have a bonding level as high as bigger, more established companies. And the only way to increase bond capacity is to have a track record of completing large projects.

“The bids out there that require payment bonding, [based on] a percentage of the work, small companies don’t have this kind of money. So right there, you’re disqualified because you can’t post the bonding,” says Gbajumo.

Gesthimani Kouloukis, owner of the Queens interior painting company Modine Contracting Corp., says she cannot get jobs because she is not affiliated with a union.

“To work for the city, if you really want opportunities out there, you have to be union,” she says. “I think that WBE is just a mask. You can get a small job, but when it comes to million-dollar contracts you can’t, even if you are able to. Even as a subcontractor, the prime [contractor] says, ‘Oh you’re not union. Don’t bid on it.'”

Londel Davis, owner of American Fire Control, Inc., a company that sells, services, recharges and inspects fire extinguishers, was cited by the mayor as an example of an M/WBE success story during a speech in 2012. But Davis says sometimes he can’t win city contracts even when he is the lowest bidder and isn’t sure why.

“I don’t know. I just know I’ve been in circumstances where I was the lowest bidder and didn’t win,” he says.

But contractors whom the city has pushed for more M/WBE subcontracts have their own concerns. James Kenneally of Harris, O’Brien, Laurent & Chaudhry LLP, a law firm that represents major contractors, says companies are pressured by the city to build and to build quickly while simultaneously told to hit certain M/WBE goals without guidance on how to do that.

“‘OK here’s your number and here’s the book of everyone who is certified and try to find as many people as you can to hit the number,'” is the city’s mantra, he says. “It seems grossly inefficient.”

He argues the city’s pressure to get the job done paired with setting flat goals for M/WBEs with little support from city agencies in meeting those goals results in “corner cutting” and “loophole seeking.”

An update to the M/WBE law in 2013 did give agencies some leeway on tailoring goals for specific jobs based on availability. But there are plenty of questions about how those goals were set.

Questions about the goals

Because the business world changes as companies fail and new ones are created every year, the goals in the M/WBE law are not supposed to be set in stone.

Getting the goals right is important. Not only are goals essential to the public concluding whether the program has succeeded or failed, but in order for M/WBE programs to sustain legal challenges, governments must be able to back up their percentage goals with evidence that they are addressing significant disparities. If the goals are not backed up with relevant and comprehensive data, a court could rule the program unlawful if anyone were to challenge it.

A year after the city M/WBE law went into effect and every two years after, the city was required to conduct a disparity study and, based on its results, offer recommendations to the City Council to change the goals. But it’s unclear whether the city has undertaken this research consistently, or whether its conclusions have been sound when it did.

In 2006, the Department of Small Business Services (SBS) contracted Miller3 Consulting (a consulting firm known for its work in researching disparities) to conduct a new study looking at minority- and woman-led business contracting in fiscal years 2005 through 2007. The study was due to SBS on January 31, 2009. In May 2009, the comptroller’s office (under Bill Thompson) asked SBS for the report; SBS said it had not received it and it was working with Miller on a time extension.

The report was never released. Some M/WBE advocates, including City Council members, have argued the mayor’s office did not like the results and therefore squashed its release. A spokesperson for the mayor directed this reporter to SBS for all questions on the M/WBE program. A spokesperson for SBS said the agency decided to conduct its own study to use more recent fiscal year data from 2009 to 2010.

Years later, the Mayor’s Office for Contract Services (MOCS) reported that it moved the studies in-house even before Miller3’s study was completed. MOCS says it conducted disparity studies in 2007 and 2009 and, along with SBS, determined no changes were needed in the goals established with the law. None of the reviews or studies were ever released to the public.

A 2011 disparity study conducted by MOCS did make it into the public record, but somewhat indirectly. A 10-page report (with a three-page appendix) with a very limited amount of data was submitted by Deputy Mayor Cas Holloway as an attachment to his testimony at a City Council hearing in October 2012. Council members received the report a day before the hearing.

Many advocates testifying at the hearing never saw the study, so unlike in 2005 when they had a chance to debate and scrutinize an independent 294-page disparity study with data from 50 sources, they didn’t even know this one—based on data from only three sources—existed.

Some at the hearing assumed the report presented by Holloway was a summary and asked for the full-length study, but no study was ever produced. A second version (slightly longer at 13 pages, three-page appendix) can be found in a City Council Contracts Committee report issued two months later, but according to MOCS’s responses to a recent FOIL request, a full-length study does not exist.

More puzzling, the two versions of the 2011 disparity research—one delivered by a deputy mayor in testimony and another used by a Council committee for a report— have completely different disparity numbers for goods contracts.

The first version of the report determines there is a significant disparity in Hispanic-owned businesses getting goods contracts. The second says there is hardly a disparity at all and that 98 percent of Hispanic-owned businesses in the goods industry that want to get city work are getting it—which according to court rulings means it would be against the law for New York City to set a goal for Hispanics in the goods industry. But legislation introduced by Speaker Quinn and passed by the Council in late 2012 to update the M/WBE law—it was signed into law in early 2013—maintains the goal for Hispanic-owned businesses in goods, barely raising the original 4.99 percent goal to a flat 5 percent.

That’s not the only question about the updated law. White and minority females are lumped into one category, but the goal—which originally applied only to white women—did not increase, thus hurting all women-owned companies because agencies and prime contractors can meet their goals more easily. One of the goals for female firms — a 37 percent share of professional services for contracts — may be changed to 17 percent because of a “drafting error.” And goals for emerging business enterprises or EBEs—basically, businesses whose obstacle is not race or gender but some other economic or social disadvantage—are maintained at 6 percent of contracts in every category even though only three EBE firms have ever been certified since the city started the program in 2006.

The goal of many M/WBE firms is to graduate from the program, which would mean they would no longer count toward participation goals. If a certified M/WBE completes city contracts totaling $15 million over a three-year period, they are deemed a graduate of the program.

The Color of Contracts: New York’s MWBE Program
Read the entire series here.

“My goal is to get thrown out of the program,” said Florence Chilton, owner of two certified companies, Florence Construction Corp. and A & F Electrical Testing.

According to SBS, not a single company has ever graduated from the program. Still, the threshold for graduating was increased in the amended law from $15 million to $50 million.

Subcontracting by hand

One area of the M/WBE program the Bloomberg administration brags about most is in subcontracting. According to MOCS, minority- and women-owned companies have won a high percentage of subcontracts valued under $1 million in recent years—38 percent in Fiscal Year 2013 and 42 percent the year before. But the figures used to come up with these percentages are questionable.

For years, city agencies have had different methods of reporting and tracking payments from prime contractors to subcontractors. The lax system came to light during one the largest scandals in New York City history.

Many know about CityTime, possibly the biggest pockmark on Bloomberg’s legacy, but few remember the subcontractor Technodyne, a certified MBE responsible for milking millions from the city as part of the CityTime debacle. Technodyne falsely inflated bills and pay rates for its employees (specialists being paid $295 per hour) for two years and pocketed millions in these overcharges.

Because of the Technodyne blemish, the system is being changed. In March, Bloomberg and Comptroller John Liu issued a joint press release to announce the creation of a new reporting system for subcontractors doing work for the city. Not one daily newspaper in New York reported the announcement.

The release announced that the city was “establishing a comprehensive subcontracting database” to “further ensure the timeliness of payments from contractors to subcontractors and more seamlessly track the utilization of minority- and women-owned businesses on subcontracted city work.”

The announcement begs one simple question. If this is a new program, what was the city doing before?

At a Council hearing in 2005 about the M/WBE law, then-Chief Procurement Officer of New York City Marla Simpson detailed the tedious process then in place, in which each agency reported subcontracts awarded to M/WBEs on a spreadsheet, which was e-mailed back and forth between MOCS and various agencies.

“We’re building an electronic system that will capture this data as the agencies’ use it in their regular course of business. So, we don’t have to come around after the fact and say, ‘Tell us who your subcontractors are and how much money each one has been approved for,'” Simpson said, according to her 2005 testimony.

Eight years later, the electronic system is just beginning to collect data (the system will launch early next year) and it only became a reality because of the CityTime scandal. In the wake of CityTime, journalists and elected officials wanted to know how the city could be unaware of the massive amount of fraud being committed by a subcontractor building a payroll system intended to prevent fraud.

According to a city employee with knowledge of the new system, the archaic tracking system detailed by Simpson in 2005 did not just apply to M/WBE subcontracts, but all subcontracts, which taken together is a large chunk city spending. In fiscal year 2013, the city spent half a billion dollars on subcontracts.

According to the employee, for years, every city agency had its own process for reporting payments from prime contractors to subcontractors. Different agencies had different forms. Some contractors even reported what they paid to their subcontractors (sometimes in the millions of dollars) by filling out forms by hand.

The room for error was so great that the comptroller’s office had refused to trust any subcontracting dollars for the M/WBE report card. The comptroller’s office in 2010 found in audits of the Department of Design and Construction, the Department of Housing Preservation and Development and the Department of Parks and Recreation that they were not monitoring to make sure M/WBE subcontractors were actually performing work a prime contractor hired them to do.

While the agencies disputed allegations that they were not following the law and keeping close tabs on payments to subcontractors, all agreed to increase their oversight.

This series was made possible by Long Island University’s George Polk Investigative Reporting Grant. To read part 3, go here. Click here to return to part 1.