MWBE success not black and white

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1 MWBE success not black and white Rockie Mann believes his small crew was hired to work on the drywall inside the $78 million convention center being built in downtown Albany not based on qualifications alone, but also because he s black. Mann owns JAFJR Construction Services in Albany, which has benefited from Gov. Andrew Cuomo s push to increase opportunities for minority- and woman-owned businesses by setting a 30 percent goal for state contracts, the highest in the nation. JAFJR Construction Services, LLC owner Rockie Mann photographed at the Albany Capital more Donna Abbott-Vlahos Until the day comes where I can get a project that has nothing to do with the goals, my attitude will not change, said Mann, 57, who did home improvements for three decades before deciding six years ago to go after large commercial jobs. The growing business based in a second-floor office in the Sheridan Hollow neighborhood near Arbor Hill has built an impressive portfolio that includes work on the GlobalFoundries computer chip plant in Saratoga County, state university student dorms and the Glendale Nursing Home in Scotia. Annual revenue averages $3 million. The measuring stick of New York s Minority- and Woman-owned Business Enterprise, or MWBE, program isn t as simple as the success of one small company or the statistics the Cuomo administration touts as signs of progress.

2 Many general and prime contractors, for instance, view the 30 percent goal as unrealistic given the number of certified MWBEs upstate. In the 518 area code, which stretches from the mid-hudson Valley through Albany to the Canadian border, there are 581 certified MWBEs, according to the state. That s just 7.5 percent of the 7,715 certified MWBEs in the state. Although an MWBE can conceivably do work anywhere in the state, construction industry executives say it s impractical to expect a small contractor in, say, Brooklyn to take a job in Glens Falls because of the distance and other reasons. They also regard the program as another regulatory burden that makes it more expensive, and complex, to do business in New York. We take it very seriously, but the program is deeply flawed, said Dave Hollander, president of Sano-Rubin Construction Services in Albany. It s very hard to meet those goals. The capacity is not there. Shortcomings in the program Yet, the state is more aggressive today about holding companies accountable for not hitting the hiring goals, including imposing financial penalties. There were $765,601 in fines during the last fiscal year, the most on record. Despite greater oversight, fraudulent activity such as using pass-through firms remains a problem. In that scheme, contractors make payments and run paperwork through a certified MWBE as a front for a non-mwbe that actually provides the service or supplies. The MWBE gets a cut of the contract for acting as the front, perhaps 3 or 5 percent. Five contractors that worked on a large school renovation project in Rochester agreed to pay $825,000 in fines earlier this month to settle accusations brought by the attorney general s office that they used pass-throughs to fulfill the school district s MWBE requirements. And, even for MWBEs like the one owned by Mann, there are shortcomings in the program. There s a lack of information about whether goals are being met on individual contracts, for example. I think greater transparency would allow us as minority contractors to reach out to somebody and say, I notice you haven t met your goals. Is there some way we could be of assistance to you? said Roxanne Wright, business manager at JAFJR Construction Services. The law s purpose

3 New York s MWBE law was enacted in 1988 to promote employment and business opportunities on state contracts for minorities and women who had been historically shut out because of discrimination and other factors. Portions of the law have been amended several times; the current statute expires Dec. 31, The purpose of this program is to ensure equal opportunity in contracting, said Alphonso David, New York s former deputy secretary for civil rights who is now the governor s counsel. Where contractors are not simply saying we will not contract with you because of the color of your skin or gender, but instead we re looking at your qualifications, experience and capacity. During the most recent fiscal year, 97 state agencies, public authorities and other entities were required to set annual MWBE hiring goals and make good faith efforts toward achieving the benchmarks, according to the annual report by Empire State Development s Division of Minority and Women s Business Development. The agencies ranged from the tiny State Commission of Correction, which had just $12,174 in spending subjected to the goals, to the giant Metropolitan Transportation Authority, which had nearly $1.3 billion. Others include the Albany Port District Commission ($2.9 million); Capital District Transportation Authority ($3.9 million); and Schenectady Metroplex Development Authority ($2.9 million). Audits conducted by the state comptroller s office during the 2000s identified many problems with the program, such as poor oversight and certification of MWBEs; state agencies falling short of the hiring goals; and insufficient outreach to certified firms. Improving the MWBE program was a priority during former Gov. David Paterson s brief tenure. He appointed a task force and signed reforms into law. In 2010, a state-commissioned disparity study found MWBEs received government contracts at rates far lower than their availability to do the work. A new disparity study is underway, costing the state $1.6 million. It s expected to be finished by December. The findings of the last study laid the foundation for Cuomo to aggressively push for greater MWBE hiring and outreach when he took office in January The steps included creating a centralized website with information about state contracting opportunities and a database of certified firms; providing up to $200,000 in loans to help businesses with cash-flow problems while they re waiting to get paid; and hosting an annual MWBE forum in Albany, an event that drew more than 2,000 people earlier this month. Doubts about the numbers Cuomo s biggest change was increasing the contract utilization rate or hiring goal to 30 percent from 10 percent.

4 The rate is calculated by dividing the total amount of contracts awarded to minority- and womanowned businesses by the total agency and authority spending subjected to MWBE requirements. In the fiscal year, $939 million of $9.39 billion in state spending went to MWBE firms, or 10 percent. Last fiscal year, $1.9 billion of $7.57 billion in state spending went to MWBE firms, or 25.1 percent. The total number of certified MWBEs in New York has more than doubled since Cuomo took office, according to the administration. Judging by the numbers, the state s outreach and enforcement efforts appear to be making a big difference. David, the governor s counsel, said Cuomo s initiatives were really important to transform the program to what it is today. Nevertheless, those in the construction business doubt the contract utilization rate has more than doubled in their industry over the past six years. The state s MWBE contracting requirements cover many types of purchases, whether it s paper or professional consultants. That s all rolled into the utilization rate. The state doesn t break out construction industry spending separately. A 30 percent goal does not align with who is out there performing public work, said Mike Elmendorf, president of Associated General Contractors of New York, a trade group. It s just not reality-based. Hitting, or missing, goals Success at hitting the hiring goal varies widely. Among the 15 state agencies and authorities that had more than $100 million in MWBE-related spending during the last fiscal year, the contract utilization rate ranged from 8.9 percent at the Department of Environmental Conservation to 34.5 percent at the Department of Health, according to the state s annual report. Mike O Connor, president of Alltek Energy Systems Inc., a heating and ventilation contractor in Waterford with annual revenues of $10 million to $12 million, stopped pursuing large state contracts in the early 2000s because of MWBE requirements and the state s prevailing wage laws. He didn t want to worry about falling short of the hiring goal and getting hit with a fine. O Connor also said the lack of certified MWBEs who supply materials put him in a position of

5 having to use a pass-through company on a job to satisfy the contracting requirements. That s not the way he wants to run his business. It s not legal to do that, but that s the only way most companies are complying, O Connor said. And that s at 20 percent [contracting goal]. The governor got aggressive with throwing out a 30 percent number. I don t think it s attainable. There are other problems with the system. A recent audit by the state comptroller s office said nearly half of 83 files examined at the Division of Minority and Women s Business Development were missing mandatory documents that are needed to certify MWBEs, increasing the chance ineligible firms could qualify. Another audit, released last year, said the state Dormitory Authority overstated the amount of business it did with MWBE contractors over a four-year period. Ups and downs of MWBE JAFJR Construction Services in Albany has experienced the ups and downs of the MWBE program since becoming certified in Its first commercial contract was at the multi-billion-dollar GlobalFoundries computer chip plant in Malta. The work wasn t glamorous picking up debris and building temporary archways and overhangs but it was a high-profile project. The scope of the initial contract turned out to be smaller than what JAFJR had bid with the builder, M+W U.S. But they performed so well it led to other work at the site, said Wright, the business manager. Over the course of 18 months, the firm was paid $3.2 million. It employed 90 at the peak of the job. It was a huge deal, Wright said. It pretty much catapulted us to everything that happened afterwards. Wright s persistence has been critical to pursuing and winning MWBE-certified jobs. There have been times when general contractors seeking bids notify her just three or four days before their deadline to submit prices a tight turnaround for a small subcontractor. She believes that s done so the general contractor can tell the state it made a good faith effort to hire a MWBE firm. That ploy is happening less frequently now, she said, perhaps because there s more scrutiny by the state and contractors are being given more time to find qualified firms.

6 Overall, the MWBE certification has enabled her and Mann to grow the company. Their $350,000 contract with Sano-Rubin to do drywall work at the convention center, for instance, will help fulfill hiring goals on the project. At the end of the day, I want to be a good construction company, Mann said, contrasting that with being known in the industry as a good, minority-owned construction company. We re there, as far as I m concerned, he said. They might not know it yet or treat us accordingly, but I think it will change. Michael DeMasi covers real estate, construction, retail and hospitality.

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