Seeking Opportunities

Minority Contractor Programs on the Rise

by Diane Greer and Tom Stabile

Smaller construction companies owned by minorities and women may be entering an era of more opportunity, thanks to new and revamped programs that aim to set aside contracts, especially on large public and private developments. But these contractors still face plenty of hurdles whether or not the programs are successful.

New programs geared toward hiring more minority and women-owned firms in the New York region are arising at major public and private developments.

The hiring programs are appearing on large redevelopment efforts such as the rebuilding of the World Trade Center in Lower Manhattan and at major private projects such as the $3.5 billion Atlantic Yards complex in Brooklyn planned by Forest City Ratner Cos.

But the basic issue of being the newer kid on the block still hampers most minority-owned firms in the sector, said Lennox Britton, managing director of the New York chapter of the National Association of Minority Contractors.

"Minority companies find it difficult to gain access to public-sector construction work and to translate such work, when they get it, into successful goals and development opportunities," he added.

For now, more "minority and women-owned business enterprise" programs, collectively known as MWBE, are in the works. Last December, New York City Mayor Michael Bloomberg signed legislation that reintroduced an MWBE program for the city that had lapsed in recent years.

At the same time, non-minority small business owners have challenged MWBE programs, and in New Jersey, forced the state to adopt a race-and-gender-neutral small business hiring program.

Beyond MWBE programs, other signs show that the industry is more focused on ways to boost minority contractor opportunities. The creation of the Mayoral Commission on Construction Opportunity, appointed last year by Bloomberg, and a Building Trades Employers' Association study issued last year about increasing minority contractor participation both signal that the industry is focusing more on the minority contractor.

Despite the overall greater industry focus, owners of minority businesses and members of small contractor associations say the sector still has far to go before minority contractors are a stable presence.

Access to opportunities to bid on projects is often a function of relationships and the business network that firms create for themselves, according to the BTEA study. In addition to price and quality of work, factors such as trust and past experience working with a firm play heavily in decisions regarding who is able to bid on projects, and is still an area where minority-owned firms are "outsiders," said J.C. Calderón, principal of J.C. Calderón Architects of New York.

"It is hard to break into the parts of the construction arena that are more lucrative, that are bigger," he added.

Minority-owned firms traditionally have depended on the public sector for larger bid opportunities, said Earl Walker, executive director of the Regional Alliance for Small Contractors, a New York-based nonprofit association. Such public projects are crucial to the growth and survival of small businesses, providing experience for larger, more complex jobs, he said.

The idea has long been that public sector opportunities for minority and women-owned firms send a signal to the private sector, said Elizabeth Velez, executive vice president of the Velez Organization, a general contractor and construction manager based in New York.

"As you see these efforts done and publicized, you see more of a willingness and a desire for the private sector to go along as well," she said.

But MWBE programs are certainly no guarantee that minority- or women-owned firms will get work or succeed, said Leonardo Fabio, president of LLF Construction Services, a small general contractor based in White Plains, N.Y.

"Most of the work that I get is from people I know," he said. "These target programs do open the door for you but what keeps you there is how you perform."

Fabio started his firm in 1999, and has focused on public sector projects, most recently handling general construction and specialty subcontractor tasks on Metro North Railroad's Croton-Harmon shop replacement in Westchester County and the recently completed Bergenline Avenue station for an extension of New Jersey Transit's Hudson-Bergen Light Rail system. He said that even on public projects, the bottom line is what matters to general contractors that hire subcontractor companies.

"In construction, regardless of the color of your skin, it always comes down to dollars and cents," Fabio said. "In my opinion, the MWBE goals are never a first factor. Price is always the first factor."

Fabio also said he isn't convinced that all of the pledged MWBE programs will stay on pace.

"We have all of these mega projects coming around and developers setting up minority programs," he said. "In my opinion, it looks good on paper, but I'll wait to see when it's fully implemented."

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Data Shows Disparities Still Exist

The City of New York Disparity Study released last year confirmed what MWBE prime contractors, subcontractors, architects, and engineers have long said - that they do not receive a proportional share of awards of municipal contracts. The study provided the data that the city used to reestablish its MWBE program in December.

"This is going on universally, whether it is New York, New Jersey, or Connecticut," Walker said. "The public and private sectors have to provide opportunities for these firms if they are going to survive."

The recent BTEA study, "The Blueprint for the Successful Growth of Minority and Women Owned Construction Companies," also underlined many longstanding concerns. It found that minority- and women-owned firms face the same issues as most small contractors, such as thin capitalization, limited business skills, late receipt of payments, restrictive lending practices, and bonding difficulties.

The report also found that opportunities to find and bid on projects, which are dependent upon business relationships or networks, were limited for the minority firms, placing them at a disadvantage.

For minority contractors, the silver lining around such findings is that the industry has already taken action to implement programs that could counteract that data.

"For the first time in a long time, I am seeing some enforcement of the goals that are established for MWBE," Velez said.

The biggest such effort is the reintroduction of New York City's MWBE program, which had fallen into disuse, said Lina Gottesman, president of Altus Metal and Marble, a specialty contactor based in St. James, N.Y.

The disparity study underpinning the new MWBE program looked at 136,915 prime contracts and 5,274 subcontracts valued at approximately $19 billion from 23 mayoral agencies for Fiscal Year 1998 through FY02 - the last 4.5 years of Mayor Rudolph Giuliani's administration and the first six months of the Bloomberg administration. The study found gaps in several instances between the number of "available" minority contractor firms for contracts valued at under $1 million and the amount of contract dollars such firms actually won.

The study led to the passage of Local Law 129 last December, which mandates citywide MWBE utilization goals and subcontractor goals of 12.63 percent for black Americans and 9.06 percent for Hispanic Americans.

"Agencies not meeting their goals can have their procurement authority adjusted," said Kerri Jew, assistant commissioner for economic and financial opportunity at the city's Department of Small Business Services.

Prime contractors not meeting subcontracting goals can have liquid damages assessed or their payments withheld, she added. The department has also revamped and streamlined the process to certify MWBE firms and is offering classroom training and one-on-one assistance to certified firms under a capacity building program.

The program, however, does not set aside contracts for other ethnic and racial minorities, such as firms owned by Asian Americans, because the city's study did not find conclusive evidence of a contract award disparity for those groups.

Beyond the city's effort, other public agencies also offer programs to help MWBE firms, including the Empire State Development Corp., the Port Authority of New York and New Jersey, the Dormitory Authority of the State of New York, and New York's Metropolitan Transportation Authority.

The Port Authority's programs aim to level the playing field for small, minority- and women-owned contractors said Lash Green, general manager of the agency's small business programs. Last year, small contractors won $25 million in set-asides and $65 million in subcontracting work from the agency, Green said.

Other Port Authority programs help to pay insurance premiums and provide more frequent contract payments to small contractors. The authority also has a mentoring program to assist with marketing, business strategy, networking, and bidding opportunities, said Shelby Netterville, president of NCC Inc., a small New Jersey-based contractor and a graduate of the program.

The effort to expand opportunities has spilled over to the private sector for some of the largest players. For instance, some large construction firms have implemented their own MWBE programs, including New York-based Turner Construction.

"Turner's corporate initiative aims to utilize MWBE on 20 percent of our contract dollars," said Richard McEachern, director of community affairs for the company.

The firm also offers courses for minority- and women-owned contractors on topics such as estimating, financial management, and marketing.

Community benefits agreements are emerging as another tool to provide new opportunities, the regional alliance's Walker said. Forest City Ratner recently signed a CBA on its planned Atlantic Yards project, which includes a goal to issue 20 percent of construction dollars to minority-owned firms and 10 percent to women-owned firms.

McKissack & McKissack, the nation's oldest black-owned construction firm, will serve as construction manager on a $182 million project at Atlantic Yards, said Cheryl McKissack, president of the Philadelphia-based firm. Forest City Ratner also is making efforts to identify minority and women-owned firms and categorize them by trade and capacity, McKissack said.

"FCRC has definitely put their money where their mouth is," she added.

Meanwhile, the Related Cos., a New York developer, is negotiating a CBA on its Bronx Gateway Center Project, a $400 million retail complex that is expected to break ground this year. And CBAs are part of the mix for new baseball stadiums planned for both the Mets and the Yankees.

Set aside programs are not without their critics. A program in New Jersey that set a goal of directing 15 percent of the state's construction contracts and other services to minority and women-owned firms met a legal challenge in 2002 when John Emilius, president of GEOD Corp., a surveying firm in Newfoundland, N.J., sued the state. The case resulted in a consent decree, which led to an executive order issued the next year by then-Gov. James McGreevey to instead reserve 25 percent of such contracts to all small businesses on a race- and gender-neutral basis.

Emilius said he does not oppose greater opportunities for minority firms but contends that the previous program enabled larger contractors on public jobs to meet the 15 percent MWBE goal with one or two firms.

"Prime engineering firms would sub out the survey work to MWBE firms because the primes rarely did that work in house," he said. "It effectively shut out small non-MWBE firms because face it, primes want to do the majority of the work."

Emilius said that his lawsuit had exposed flaws in the disparity study that had underpinned New Jersey's MWBE program. For now, the neutral program, while garnering Emilius himself some notoriety, remains in place.

"We caught a little bit of flak," he said. "But under the new program, we have gotten work, and minority- and women- owned businesses are getting more work than before because now the state is enforcing the goals. And it's 25 percent not 15 percent."

New York City also recently established a race- and gender-neutral contracting program, but the effort is a complement to the city's MWBE initiative. Bloomberg signed legislation in May to set up an "emerging business enterprise" program that will have goals for assuring "EBE" participation on subcontracts under $1 million for certain projects.

In his comments upon signing the bill, Bloomberg said the program is designed to offer opportunities to racial, ethnic, and gender minority-owned firms that are not covered under the main MWBE program.

Business, Finance Hurdles Remain

A lack of financial resources and working capital still hamper many minority and women-owned firms.

"It does not matter how long you have been in business, it is still difficult as a woman or minority to obtain financing," Atlus's Gottesman said. "Banks do not want to give construction companies money and then if you are a person of color or a woman, right away you have another strike against you."

Without financing, firms often can't fund the early stages of work or bid on larger projects, which in turn prevents them from improving their financial performance. The BTEA study found that among less successful firms, 40 percent lost business due to a lack of capital and 50 percent did not pursue business due to a lack of capital.

Project bonding, which most public and some private contracts require, imposes additional financial costs and barriers for minority contractors trying to obtain work.

"Today there are many ways to determine if small contractors are reliable or not, without requiring bonding," said the regional alliance's Walker.

Some public agencies, such as the Port Authority, no longer require bonding on contracts under $1 million. Meanwhile, Forest City Ratner is looking into alternatives to bonding on the Atlantic Yards project, added McKissack.

Discrimination also contributes to an uphill battle for minority- and women-owned companies in a way that can slow growth, Gottesman said. As an example, she described a meeting she had with bankers from whom she had sought financing.

"Even though I clearly have control of all the finances, they said, 'Why don't you bring in your husband and we will talk about it?'" she said.

Another problem with significant repercussions for minority- and women-owned firms is a general lack of business skills, general contractor Velez said.

"A lot of smaller MWBE firms focus on the building the project, not the building the company," she added.

She said these firms are not paying enough attention to issues such as business development, networking, and maintaining good financial records required to obtain bank loans.

In the end, LLF's Fabio said minority contractors can't rely on MWBE programs to survive, but rather need to build up and rely on their own strengths.

"Once we learn how to play this game, a lot of us will be better off," he said.