Small change in law makes big change in contracting procedure
Editor's note: This report is part of a joint project of The News-Gazette and the University of Illinois Department of Journalism, in an ongoing examination of poverty and its related issues in Champaign County. The project is funded by the Marajen Stevick Foundation, a News-Gazette foundation; a matching grant from the John S. and James L. Knight Foundation, a journalism foundation based in Miami; and contributions from the UI. The project also has a website for this and other material, including user-generated content. (See previous installments of this project about labor unions and minorities here and here.)
Illinois' legislative effort to level the playing field for minority- and female-owned businesses comes down to a single sentence, and a simple one at that: "Those who submit bids or proposals for State contracts shall not be given a period after the bid or proposal is submitted to cure deficiencies ... "
Senate Bill 351, enacted five months ago, has already been responsible for the disqualification of numerous bids. "In one case, we have gone down to the 10th lowest bidder," Jesse Martinez told an audience of contractors.
Martinez, administrator of the Capital Development Board's office of fair employment practices, was in Peoria hosting his fifth seminar explaining the new law. This one was sparsely attended, attracting only about 25 contractors. A previous Community Outreach, as CDB calls these sessions, had drawn 125.
These sessions are necessary because the subtle change in the law seems minor, but it isn't. Before the change, when a contractor bid on a state project, the contractor could arrive at a projected cost for the work using subcontractors who were all white males. If the contractor won the job, by being the lowest bidder, he then had 30 days to "cure deficiencies" in his bid, such as meeting the state's goals for including minority and female subcontractors.
To fix that part of the bid, the contractor could call Martinez, or someone else in Martinez's office, and they would lead the contractor to websites listing qualified subcontractors. The contractor would then contact businesses on the lists and negotiate agreements with a few of these minority business enterprises and female business enterprises (MBE/FBE firms, as they're known in the trade).
"See, that's the good thing," Martinez said. "They would meet or exceed the goals, because we had time to work with them."
The problem with that scenario was that the MBEs and FBEs were, in the lingo of the construction trade, getting "bid-shopped." Since the state had already accepted the bid from the main contractor (known as the prime contractor), the contractor had a specific dollar amount to meet, and it left scant wiggle-room for MBEs and FBEs. If they wanted to get the job, they had to agree to a low figure. "That's kind of like forcing a man to cut his prices," Martinez said.
Under the new law, the prime contractor has to include minority and female subcontractors in the original bid package. This change means that the negotiations now happen before the contractor writes the bid instead of only after the cost is set in stone.
"You can still do the bid-shopping," Martinez said, "but now you have to do it upfront, before you submit that bid.
"The construction industry is based on relationships, it's based on trust on the business end – 'These are people I've been doing business with so many years, this is who I can trust to do this job correctly.' They don't want to invite anybody else because that's an unknown. There's valid issues with that logic," Martinez said. "But at the end of the day, it's public money and everybody should have a piece of the opportunity."
For some jobs, the state requires the contractor to include either MBEs or FBEs, but the larger the project, the more likely that the state will require both. That's because in downstate areas, contractors tended to meet goals only with female-owned businesses rather than minority businesses, Martinez said. The goals are also adjusted by region to account for varying populations. Central Illinois, including Champaign County, is in Region 3, where the goal is generally 6 percent. In Region 1, which includes Cook County and the collar counties, the goal is 18 percent. In Region 5, the southernmost part of the state, it's 4 percent. The goal in the area around East St. Louis is 8 percent.
At the Community Outreach seminar, where the lineup of presenters included white, Hispanic and African-American state employees, the resistance to these requirements was polite. For example, one white man raised his hand and said, "I run an association of contractors. When 351 came out, I received calls from my members." Their concern, he said, was that an MBE or FBE included in a bid might subsequently pull out, leaving them in a lurch.
Martinez told the man that if that happened, someone in the fair employment office would simply call the subcontractor and confirm those facts; the contractor would not be penalized and his bid would not be disqualified. Then Martinez said: "You know, that could happen with any non-minority subcontractor too."
The politeness may not be genuine. A few weeks ago, Martinez's office was given a memo that had apparently been circulating among contractors describing in detail how to evade meeting MBE goals while still appearing to make good faith efforts. Step 1 of the six-page memo said: "Always be courteous, always be congenial (especially to compliance officers)." The next steps included expressing sympathy for minorities, and never refusing a request. Step 4: "Promise anything, then procrastinate like hell."
Other instructions were more specific, such as sending out invitations-to-bid to nonrelevant minority-owned businesses – janitorial supply firms and funeral directors, for instance. Just in case these invitations reach any legitimate subcontractors, the bid deadline date should not be listed on the invitation. And if a subcontractor does respond in a timely manner, the contractor should avoid sharing the specifications of the work. "Never lend a set of drawings to a minority contractor," the memo states on page 3.
There's evidence that some people in the industry have followed the memo. At the seminar, James Cockrell, the capital planning administrator, told the contractors that he had received bids that failed to meet the goals with "good faith effort" documentation so voluminous, it was contained in three-ring binders. Some contractors have hired "consultants" to supposedly search for qualified MBEs and explain why none could be found.
"Some firms spend more time working on their 'good faith' than actually looking for subcontractors," Cockrell said.
Martinez put it another way: "They think, 'We'll bury them in paperwork and they'll be too lazy or overwhelmed to follow up. I'll kill a tree so I don't have to include minority and female participation,' " he said. "That's what's mind-boggling. They'll go out of their way not to include them."