City Eyes Possibility Of Race-Based Program For Awarding Contracts
(photo courtesy of Charlotte Observer)
Based on the results of a study that has missed two deadlines for the release of its findings, the City of Charlotte could see a shift from its current race-neutral program used for awarding public contracts to a race-conscious program similar to one that landed the city a lawsuit less than a decade ago, sparking renewed debate over the merits of mandatory percentages set aside for minority-owned businesses that contract with the city.
Last October the city council unanimously voted to pay $305,450 to consultant group MGT of America to update the city’s Disparity Study. The thrust of the assignment was to review data from July 2005 through June 2010 to determine whether there is evidence of past or present discrimination against racial and ethnic minorities in the city’s public contracting practices, and to compare the utilization of minority- and women-owned firms on city contracts to the availability of these firms in the relevant market to determine whether disparity exists.
Under threat of a lawsuit, the city in 2002 scrapped its Minority and Woman Business Development program that mandated a certain percentage of subcontracts be set aside for women and minority contractors. In its wake, the city created a Small Business Opportunity (SBO) program that established public contracting goals and good faith effort requirements to engage city-certified small business enterprises. As of April 2010, the city’s database had 803 certified small businesses, most of which are minority-owned.
The city’s SBO program, however, hasn’t delivered the results that some were hoping, falling short of utilization goals for minority-owned businesses that some councilmembers and city leaders think are appropriate.
Based on the new Disparity Study’s findings, the final report “will determine if a legally justified need exists for implementation of an M/WBE (minority- women-owned business enterprise) program, as well as provide recommendations regarding suggested modifications to the City’s current Small Business Opportunity Program,” according to a recent city manager’s memo.
“I think there’s a lot of room for improvement,” said Councilmember James Mitchell, a Democrat who originally voted against the city’s decision to dismantle its race-conscious program, even as it faced litigation that most legal experts, including the city attorney, thought Charlotte would lose.
James Mitchell (photo: City of Charlotte)
“I haven’t been impressed by the results we’ve seen using a race-neutral program,” said Mitchell, who chairs the council’s economic development committee. “I don’t think we’ve set our goals high enough. We need to lead more people to the door.”
The SBO program last year increased the citywide small business enterprise utilization goal from 10 to 12 percent. Small business enterprise payments of informal and formal contracts totaled $15.25 million in fiscal year 2009, up 4.42 percent from the previous year, according to the city’s most recent small business enterprise utilization report.
Informal contracts include construction contracts less than $200,000 and other contracts and services less than $100,000. Formal contracts include construction contracts more than $200,000 and other contracts and services more than $100,000.
Of the total citywide spending for informal contracts in fiscal year 2009, 8.3 percent ($7.8 million) of it was with certified small business enterprises, a drop from 11.74 percent ($8.8 million) the previous year. Citywide spending on formal contracts increased to $7.4 million, up from $5.7 million the previous year.
For citywide informal and formal purchases, nearly $51.4 million, or 10.14 percent, was spent with minority- and women-owned firms as prime contractors, meeting the city’s goals in only two of six categories. That’s a drop from the previous year, when goals were met in five of six categories and close to $53 million was spent with minority- and women-owned businesses as prime contractors.
For fiscal year 2009, there was no finding of disparity in construction subcontracting for any of the five minority categories: African-American; Asian-American; Hispanic-American; Native-American; and non-minority women.
“For the most part, I’m happy with the way things are now with the SBO program,” said Republican Councilmember Andy Dulin. “And I’d have concerns from a legal standpoint if we make rash decisions.”
Andy Dulin (photo: City of Charlotte)
“Unless [the Disparity Study] is just staggeringly skewed showing unfairness,” he said, “I don’t see any reason for changing course.”
Councilmembers, though, will have to wait a while longer to see the results of MGT’s report. The findings were originally slated for release in July, which became August, which was recently bumped to late September, the result of city staff discovering a number of discrepancies in the study that needed to be addressed: contractors incorrectly classified as to race/gender/ethnicity; missing payment data, including all payments related to the NASCAR Hall of Fame (which were inadvertently excluded because the contractor was paid by wire transfer); and payments that were included in the utilization data but should not have been, such as payments to property owners in real estate transactions.
The string of delays, as well as the errors and oversights found in the study, has fostered equal parts frustration and skepticism.
“I think we start to lose credibility in the community,” Mitchell said. “There are lots of stakeholders questioning what’s taken so long and why we’re finding these problems.”
The driving causes behind the report’s discrepancies, he said, are attributed to the city’s outdated filing system and aging computer software.
While Mitchell and other councilmembers said they’ve been discouraged with the Disparity Study’s delayed release, they agree it’s worth the wait to obtain valid, accurate, and reliable data.
When the results are finally available for official review, Mitchell predicted they would show what his gut-instinct and community feedback are already telling him: that significant enough disparity exists to justify a return to a race-conscious contracting policy.
“I want to see if the data supports the phone calls I’m getting and concerns I’m hearing,” Mitchell said. “Emotionally, I have heard from the citizens. But I don’t want to make an emotional decision; I want to make a fact-based decision.”
SBO Costs and Concerns
When the city implemented its Small Business Opportunity program, several councilmembers at the time raised concerns that it could lead to cumbersome regulations and mandates, as well as increased costs for construction contracts and procurement bids.
The SBO program allows the city to refuse to award contracts to bidders that fail to either meet a contract’s small business utilization goal, which is based on the percent of total money spent with city-certified small business enterprises as a portion of a total bid, or comply with city-established good faith efforts that show, as the name implies, a bidder made an effort to meet the small business enterprise goal.
For each construction contract, for example, the city sets a minimum number of points a bidder must achieve to prove a good faith effort has been made. Points are awarded based on myriad requirements, ranging from whether a bidder has contacted a city-mandated number of small business enterprises for consideration, to whether a bidder has posted contract documents on a website that small business enterprises can access without cost, or if a bidder has provided assistance to a small business enterprise in obtaining loans, equipment, or lines of credit.
Those good faith efforts, critics argue, haven’t been good enough to produce parity in the percentage of contracts that are awarded to minority-owned businesses.
“We wanted to bring attention to the deplorable disparity of jobs through government contracts for our minority contractors,” the Rev. Kojo Nantambu, president of the Charlotte Chapter of the NAACP, wrote earlier this year in an open letter to elected officials. “We are about 30% of this community yet we get less than 1% of all contracts; this is unacceptable. Many contractors in Charlotte have had to go out of business because of this fact and a lot of large construction companies are very crafty in getting around the utilization of minority contractors.”
Part of the problem, however, can be attributed to competing city policies and the availability of city-certified small business enterprises, according to the findings of a Small Business Opportunity Program Task Force established last year by Mayor Anthony Foxx.
“Many KBUs (Key Business Units – i.e. city departments) have been consolidating smaller informal contracts into larger formal contracts to gain volume pricing that helps reduce overall KBU expenditures,” the task force’s report concludes. “The business decision to pool contracts often makes it difficult for SBEs (small business enterprises) to win these formal bid opportunities because many SBEs lack the size and economies of scale to render them the low bidder.”
The task force’s review of SBE quarterly utilization reports, along with feedback and input from groups like the Metrolina Minority Contractors Association, found that existing citywide and department goals do not accurately reflect available small business enterprise opportunities with the city as a whole and its respective departments.
Repeated offers seeking comment for this article from the Metrolina Minority Contractors Association went unanswered.
Councilmember Warren Cooksey, a Republican, said the SBO program and its policies are often in conflict with bottom-line commonsense and good business practices, at a cost to taxpayers.
Warren Cooksey (photo: City of Charlotte)
The most recent example, he said, came when the city council in June rejected two low bids on a transportation project for Brookshire/Wilkinson Boulevard, because the bidders didn’t meet small business enterprise goals or show good faith efforts had been made to meet them.
The first low bid, of $195,163, was rejected because the company didn’t provide properly documented commitments to reflect a SBO utilization of rate of 8 percent, and the company declined the option of pursuing enough good faith effort points to be eligible.
The second low bid, of $202,506, was rejected when the city ruled that the company’s small business enterprise utilization rate of 9.63 percent was incorrect because one of the vendors listed did not have current certification under SBO program requirements. The actual utilization rate, city officials determined, was 3.7 percent, which was less than the established goal, and the company declined the option of pursuing good faith efforts.
The council ultimately approved the third low bid, of $224,853, from a company that met the city’s SBO goals.
“Here’s a case where the program essentially cost the taxpayers about $30,000,” Cooksey said, noting the difference between the original low bid and the one approved by councilmembers.
“I’m not a big fan of the SBO,” he said, “because of its tendency to grow government and add cost.”
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