John Emilius is president of GEOD Corp., a surveying firm based in Newfoundland, N.J.

Minority Subcontract Goals Can Harm Smaller Firms

When public entities set targets for hiring firms owned by women and minorities, they create a high barrier for smaller, non-minority firms.

by John Emilius

Under former Gov. James McGreevey, the state of New Jersey implemented Executive Order 71 in 2003, which requires all state agencies, colleges, and universities to achieve a small business enterprise goal of 25 percent on projects that are state-funded.

The order has enabled all small businesses, regardless of the race or gender of their owners, an equal opportunity of procuring subcontract work. Small business owners are no longer denied an opportunity because they are not the right race, ethnicity, or gender.

The order reverses the effects of subcontract goals that many local governments have adopted in order to favor firms owned by minorities and women. On government-funded engineering, design, and construction projects in various jurisdictions, these goals set aside 10 to 30 percent of contracts for such minority- and women-business enterprises.

But those goals have created a policy of racial discrimination against small businesses owned by white males. Non-MBE-WBE firms see a tremendous decrease in the amount of work competitively offered to them as a result.

I speak for many small subconsultants who provide surveying, geotechnical, traffic, and other specialty subcontract services who are being denied - due to race or gender - the opportunity to win public works contracts. Discrimination is wrong, regardless of whether the victim is black, white, Hispanic, or female.

The change in New Jersey came about because I believed that my surveying and mapping firm, GEOD Corp., was experiencing "reverse discrimination" as a result of a set-aside program that the state had in place.

Through the Freedom of Information Act, I obtained a list of state contracts awarded between 1995 and 2000 by the departments of transportation in both New Jersey and New York. I found that 80 percent of all subconsultants on engineering design contracts - which are typically small businesses - were MBE-WBE firms. For professional services such as land and aerial surveys, that percentage was even higher, climbing to 95 percent.

Bolstered by this research, I complained to local and state officials that with mandatory subcontract goals on prime contracts set as high as 30 percent, there was little opportunity left for small businesses owned by white males to provide services as subconsultants.

Why? It's because the prime contractor typically will only subcontract out the type of work it does not perform in-house, which rarely amounts to more than 30 percent of project cost. So, under a 30 percent target, most or all subcontracts would go to MBE-WBE firms.

When these arguments fell on deaf ears, GEOD decided to take legal action. Represented by the nonprofit Atlantic Legal Foundation, we filed suit in June 2001 against the State of New Jersey, alleging that its set-aside program violated the constitutional rights of GEOD and its shareholders because it discriminated against them on the basis of race, ethnicity, and gender. We claimed that GEOD was wrongfully denied opportunities to bid upon and obtain state jobs, largely as a subcontractor, because a hefty portion of the firm's work was governed by existing state preference programs that favored MBE and WBE firms.

New Jersey's Office of the Attorney General conceded, and on July 11, 2003, the U.S. District Court for New Jersey entered a consent decree in our case, GEOD Corp., vs. State of New Jersey, et al., that bars the state from enforcing its previous set-aside program favoring firms owned by minorities and women. The court said that the program violates the Equal Protection Clause of the U.S. Constitution.

Mark Holmes, the deputy attorney general who handled the case, later told NJBiz magazine in a July 2003 article that the state's programs would not have met the U.S. Supreme Court's constitutionality tests for public contracting set-aside goals.

Since then, under the race-neutral program, firms led by minorities, women, and white male owners have seen ample work opportunities. In addition, the New Jersey Department of Transportation is meeting its 10 percent participation goals under the federal Disadvantaged Business Enterprise program by utilizing race-neutral methods in its Emerging Small Business Enterprise program.

With New Jersey on the right track, New York should follow its lead by ceasing its preference programs and instituting race and gender-neutral subcontracting goals. Subcontract goals that provide opportunities for all small businesses should be part of all engineering design and construction projects.