By Ellie Ismailidou
Five years ago, New York City set an ambitious goal for itself: a certain percentage of contracts under $1 million, ranging from professional services and goods to construction works, would be awarded to minority or women-owned businesses – known in city parlance as “M/WBE.” The City Council enacted a law that established objectives ranging from five to nine percent depending on the minority group.
But reality has fallen short. As of the past year, the actual percentage of contracts awarded to women and minority businesses are 5 to 17 percentage points lower than the law’s objectives, according to the “M/WBE Report Card” issued by New York City’s comptroller.
For Hispanic businesses, the 2005 law established goals that ranged from five to nine percent of contracts under $1 million, depending on the service or product provided. The actual citywide rate through 2012 has not exceeded 0.5 percent.
For African-American businesses, the 2005 goals ranged from 7.5 to 12.6 percent. The rates in 2012 average around 0.3 percent.
Asian-American businesses seem to be the most successful, peaking at around 2.5 percent of the city’s spending in October. But this is still significantly below the 5 to 9.5 percent goals established by the law.
The biggest shortfall is for businesses owned by white women. . The law stipulates goals that range from 16.5 to 17.8 percent for contracts under $1 million. The results have not exceeded 1.2% in 2012.
“I am not surprised,” says Amparo Connors, 53, owner of a Queens staffing firm that provides job placement and recruiting services. Her firm offers temporary or permanent staff to employers looking to hire, through screening and testing procedures.
Sitting in her Kew Gardens Hills office, Connors is surrounded by evidence of her different roles; piles of invoices and spreadsheets alternate with drawings by her three children. When she talks, she switches easily between English and Spanish, as she was born in Colombia and moved to New York at the age of 9, in 1968.
Connors has a specific identity that many business owners in New York would envy: in 2007 she managed to become certified as a Minority/Woman-owned Business Enterprise (M/WBE) in New York City, which gave her the opportunity to bid for contracts with city and state agencies.
This is not easy. There are about 400,000 minority-owned businesses in New York City, according to a February 2012 report on immigrant businesses, spearheaded by Public Advocate Bill de Blasio and the micro-lending group Accion USA. Only 3,526, or less than 1 percent, are certified as M/WBE.
Connors ran her business for eight years before she became certified in 2007. “When I first looked into becoming certified in 2005, the application was really long… They wanted copies of your tax forms, your lease, your incorporation documents, your personal income taxes. There were a lot of questions on your clients, your revenue, your products and services,” says Connors.
In 2005, New York City initiated efforts to simplify the process. It also launched free workshops and awarded funding to community groups to assist businesses with the procedure.
Connors received city certification in 2007, and shortly afterwards she applied for certification from the state. She then got federal approval as well.
According to the revised requirements established by the city, a business needs to be operating for at least a year before it can apply for certification. It needs to operate in New York and derive more than 25% of its gross receipts from business conducted in the city. And it should be at least 51% owned, operated and controlled by a woman or a member of an ethnic minority.
To deter scams, city authorities perform random inspections, before and after certification. Breaking the law can have consequences that range from decertification and fines to federal prosecution. The most prominent M/WBE fraud cases are found in the construction sector.
In April 2012, James Abadie, the former head of the New York office of Lend Lease Construction LMB Inc. pleaded guilty to defrauding the State of New York regarding MBE requirements on the Bronx Criminal Courthouse construction project. In order to win bids on public projects, this firm falsely represented that certified MBEs were performing work. The company was required to pay up to $56 million in penalties to the federal government and Abadie faces up to 20 years in prison.
M/WBE scams are not limited to New York. Chicago’s Inspector General has conducted numerous investigations examining fraud, abuse, and mismanagement in the program. In May 2010 the Inspector General Office issued a report that found widespread fraud and mismanagement in more than $1 billion in city contracts since 2003. The investigations resulted in the decertification of over 20 firms by May 2010.
In order to pass the government requirements, a woman or member of minority must own and run at least 50% of the company. However, this is not always easy, because “the biggest problem for women and member of minorities starting out in the business world is lack of access to capital,” says Robin Wilson of the Queens Women’s Business Center, a division of the non-profit Queens Economic Development Corp.
Wilson says she has consulted with more than 800 women over the past four years, most of whom are Hispanic. “Most start out with an initial capital need of $5,000 to $10,000. They start with their own savings…but they often need a small loan,” says Wilson. But banks rarely offer such low amounts, and they ask for at least two years business experience. A good alternative, says Wilson, are micro-lending organizations that provide loans, usually up to $10,000, to new businesses, without asking for collateral.
Accion USA offers the so-called Sprout loans, which are $1,000 – $5,000 loans for individuals looking to start a home-based business. It requires applicants to have less than $500 in past-due debt and a business plan with a 12-month cash flow projection. The interest rates average around 11%.
There is no capital requirement for a W/MBE certification. However, most contracts offered by the city range between $100,000 and $1 million. They have high bonding requirements, which is a form of assurance in case a contractor fails to meet the obligations of the contract. “I have often been unable to bid because I lacked one of the requirements… Often only multimillion businesses can meet them,” Connors says.
Furthermore, even if a M/WBE business is qualified to bid, this doesn’t mean that it will win the contract. State law requires a majority of contracts to be awarded to the lowest vendor or to the best proposal.
“For a big company it is easier to lower prices… That is another reason why small businesses most often don’t end up winning,” says Connors.
Connors won her first staffing contract with the U.S. Merchant Marine Academy in 2011, four years after getting certified. These recurring contracts amount to $100,000 of revenue yearly. In 2012 she also won a subcontract with the state, valued at approximately $120,000.
“It has been a big help. But it is not what kept us in business,” Connors says.
New York City allows more flexibility on so-called micropurchases, valued at less than $100,000. In these cases, agencies have more discretion to pick vendors based on good prior performance, instead of the lowest bid. During fiscal year 2012, M/WBE vendors obtained over 25% of the city’s micropurchases, up from almost 20% in 2011.
But there are those who oppose this practice. According to the Center for Equal Opportunity, a conservative think tank devoted to issues of race and ethnicity, to award a contract to someone other than the lowest bidder “breeds corruption and otherwise costs the taxpayers and businesses money”.
The Center’s CEO and counsel general, Roger Clegg, has been opposed to M/WBE programs at every level of government and has co-published a legal brief for contractors who feel discriminated against by such programs. “All governmental action based on race should be subjected to detailed judicial inquiry to ensure that the personal right to equal protection of the laws has not been infringed,” writes Clegg.
According to Clegg, the best way to enhance participation of minorities in public contracts is by “requiring the wide publication of bidding opportunities and ensuring that the whole contract process is transparent and open.” Current programs constitute more discrimination against a new set of victims.”