There’s little doubt that the construction and contracting industry is changing — and changing at light speed. We live in a world of fast-paced, constant change and evolution, and the construction market is no different. It’s a world of ups and downs, adjustments, advancements, and shifting attitudes. What has traditionally been a male-dominated business is now seeing a growing influx of women, not just in administrative and labor positions, but as company owners. This marks a notable shift in the industry. As women- and minority-owned businesses become more common, the government seeks to encourage the trend.
New incentives exist to encourage the development of such businesses, and there are things you need to know in order to work with these companies to get good results for your contracts. Let’s look at best practices for working with women- and minority-owned businesses, what you need to know about the law and the approach you should take.
State, Federal and Local MBE Participation Rules
Contractors in recent years have been hit with significant fines for non-compliance with federal, state and local participation rules regarding minority-owned and women-owned businesses. In fact, over the past several years, settlements in excess of $100 million have been issued in non-compliance cases to avoid prosecution and loss of licensure.
You need to understand that in today’s climate, there are rules in place regarding contracting with MBEs (minority-owned businesses). These rules exist not only at the federal level, but state and local municipalities are also enacting their own laws, which may be stricter than those at the federal level.
Federal laws exist under the Disadvantaged Business Enterprise, or DBE, program. It was first launched by the Department of Transportation in 1980 as an initiative to increase participation amongst disadvantaged and minority businesses in regard to federal and public construction contracts. In 1987, the program was expanded to women-owned companies. In 1995, the program’s focus was narrowed to provide a more level playing field. Even today, the program continues to evolve.
The Challenges Faced by Women- and Minority-Owned Businesses
It’s important, as a contract holder, to understand the challenges faced by MBEs and women-owned businesses. Having an understanding of the challenges these companies face can make it far easier for you to work within the regulations regarding compliance. Women and other minorities face an uphill battle to establish themselves in a traditionally male-dominated industry, and they need help to compete.
Sometimes there’s a knee-jerk reaction to being told which companies with which you are required to do business, and on the one hand that’s understandable. It’s also important, however, that we understand that doors are being opened to other companies that can provide service that’s just as good — often, even better — with new ideas, new approaches, and new accomplishments which benefit the industry as a whole.
Minority-owned businesses face a wide range of difficulties and challenges. These include facing negative views and prejudice regarding their ability to complete a job and overcoming uneducated views regarding their sophistication and capabilities. Such companies often have limited access to vital business and information networks and limited access to capital. They experience having to resolve unclear contract terms, payment irregularities, and even interference from labor unions who resent a perceived intrusion into long-established methods of operation.
Another difficulty faced by MBEs and WBEs are related to bonding issues. Performance and payment bonds are required for any company that is going to work on a government contract, to offer protection to their subcontractors and contract issuers against breach. Many WBEs and MBEs, unfortunately, have historically encountered major barriers to obtaining sufficient bonding.
Fortunately, the U.S. Small Business Administration today offers a special bonding program specifically geared toward small and disadvantaged businesses, which allows them to bid on contracts up to $6 million in value, thus enabling them to compete at higher levels. This program is an essential element in leveling the playing field, and if you encounter a business interested in bidding your project, which doesn’t feel they can get bonded, you may point them in this direction to help them get a bid in place.
What Qualifies as a Certified Women-Owned Business?
The federal government has specific requirements that a company must meet in order to qualify and become certified as a woman-owned business. In order to be in compliance with MBE requirements, you should always be sure that the companies with whom you contract are themselves in compliance with these requirements.
In order to be eligible for the women’s contracting program, a business must be a small business that is at least 51% owned and controlled by women who are also citizens of the United States. Women must also manage the day-to-day operations of the company as well as make long-term business decisions.
Economically disadvantaged businesses under this program have to meet the above requirements, plus meet certain net worth, adjusted gross income and personal asset requirements. These requirements are very specific, and while some businesses can (temporarily) self-certify, this is a slippery slope. It’s important when dealing with these companies to ask if they are certified. If they aren’t, you’re within your rights to request that they become certified, both for their benefit and yours.
Disadvantaged Business Programs
The Disadvantaged Business Enterprise program, or DBE, with the US Department of Transportation, was established under the Safe, Accountable, Flexible, Efficient Transportation Act. It was created to provide opportunities for and increase participation by state and local governments who get funding from the USDOT for contracting projects.
Under this program, any agency that receives federal funds is required to set participation goals and DBE subcontracting goals. A DBE subcontractor has to provide a function that is commercially useful, and if this goal isn’t met, the prime contractor on the project has to prove that they made efforts in good faith to meet the goal.
In addition, any state that receives such federal funds has to maintain a UCP, or Unified Certification Program, that includes mandatory reciprocity among all agencies within the state. This program is responsible for issuing DBE certifications and for maintaining a directory of authorized businesses under the program, which is publicly available.
What Are Minimum Participation Goals?
The minimum participation goals differ between projects and contract sizes. The EPA, for example, requires minority participation goals between 8% and 10%. The Department of Transportation requires a 10% participation rate. Individual states can have much more stringent requirements — Illinois requires a 19% participation rate, while California has a “small business goal” of 25%, for example. Massachusetts has a combined WBE (woman-owned business enterprise) and MBE participation goal of 10.4%. New Jersey has a 25% goal. Virginia’s goal is 42%, while Maryland’s is 29%, and North Carolina has a 10% goal. The District of Columbia has nothing strictly related to minority businesses, but does require a 50% participation goal by local small businesses, which include WBEs and MBEs. As you can see, these requirements and participation goals vary widely from state to state.
Some states don’t have MBE or WBE goals but do maintain MBE offices to promote and encourage participation. Such states include the New York Division of Minority and Women-Owned Business Development and Florida’s Office of Supplier Diversity.
It’s important to do your homework when you have a contract that you’re opening for bid and determine what the participation level is in your state for your specific project. The Small Business Act, for any contract which results in an award greater than $1 million for construction projects and greater than $500,000 for other contracts, requires the prime contractor to submit subcontracting plans detailing their intent to use MBEs.
Watch for Fraud
It’s also important to watch out for fraud. Federal, state, and local governments have taken steps to weed out phony minority contractors. It’s sad, but a measurable number of companies try to game the system to get certified as MBEs, when they don’t technically meet the requirements to do so, and thus gain an unfair advantage in bidding contracts. Some supposed MBEs act as pass-throughs to win contracts, which they then pass on to non-minority companies.
Not only is this dishonest and a fraudulent exploitation of an important initiative, but it can also open up your company to actionable situations if you haven’t taken the proper steps to ensure your own compliance. While such fraud is rare, even a single instance can endanger an entire initiative. That’s why it’s important to work closely with your local officials and with the companies with whom you contract to be sure everyone is taking all the right steps.
The Benefits of Working With WBEs and MBEs
Your company will not only meet compliance regulations by working with MBEs and WBEs, but there are also real benefits of doing so. By working with these companies, you can earn and increase your own credentials and respect within the industry. You’re also helping to grow the construction and contracting industry overall by opening doors to new businesses who might otherwise not have had a chance.
Many of these companies bring new and exciting insights and approaches to problems to the table. This can help you increase your own efficiency and even teach you a few things you hadn’t considered before. Many such businesses are headed by young, up-and-coming professionals who have outstanding insights into the evolution of our industry and its unique problems and can bring those insights to your table. By helping a new small business grow in this fashion, you’re also improving your own best practices and growing your own company.
Overcoming Prejudice and Bias
As a contract issuer, it’s important to understand that the vast majority of barriers against women-owned businesses and minority-owned businesses are related to old prejudices and bias regarding capability, and we must overcome those prejudices to move forward. Women and minorities have had a very difficult time in the past entering trade unions and even being able to participate in apprenticeship programs. Fortunately, this has largely changed and continues to change for the better, but it has left an imbalance in the number of women and minorities in the field.
This imbalance creates a vacuum which leads to ongoing bias. In the end, however, it comes down to this: women-owned and minority-owned businesses are no different than any other business. They just need the opportunity to prove that. When working with these companies, the best thing you can do is to treat them exactly as you would any other construction company. Trust that they are experts in what they do, that they have the qualifications and experience to be where they are, and that they will complete the job on time and with a high standard of quality assurance.
WBEs on the Rise
Despite these challenges, and partially because of efforts at the government level to encourage their development, WBEs and MBEs are on the rise in the construction industry. In fact, they are one of the fastest-growing segments in the entire economy of the United States. In 2007, less than 6% of companies in the construction industry were women-owned. Since then, the number of women-owned businesses has increased by 58%, and today, women are considered to be more likely to start a new business than men.
Women-owned businesses today employ 9.2 million people, which translates to 8% of the total private sector workforce, and generate $1.8 trillion in revenue. Total employment in the decade between 2007 and 2018 by women-owned companies increased by some 21%, while overall employment in the nation decreased by 0.8%.
Of these businesses, those owned by women of color comprise 47% of all WBEs. These employ 2.2 million workers, and they generate over $386 billion every year in revenue. While these numbers reflect all WBEs and MBEs in the nation and not just construction, such businesses are here to stay, and they will only continue to grow as the years go by.
Public perception is still a barrier, however, and there’s still a long way to go. In fact, in many areas, city and municipal contracts still tend not to be awarded to small businesses owned by women or minorities. The old biases are still in place, and it’s vital that we overcome them.
Working With Women- and Minority-Owned Businesses
As a general contractor, it’s important to understand the rules and regulations surrounding WBE and MBE participation for any agency with whom you bid. That includes the regulations regarding good faith efforts and commercially useful functions. Working with local offices and agencies is a great way to locate reliable MBE contractors through their public directory.
You can also publish advertisements in minority- and ethnic-driven publications, as well as contact local minority contractors’ associations. Many areas hold outreach programs that are sponsored by local and state MBE program offices and local contracting associations. These can present outstanding opportunities for networking and finding your next partner.
National associations such as the National Association of Minority Contractors, The National Hispanic Construction Association, the National Black Contractors Association, and the National Association of Women in Construction are also valuable resources. Such organizations will often have local chapters familiar with your region’s construction industry and are happy to work with new companies.
National Surety Services, Inc.
At National Surety Services, Inc., we are dedicated to supporting the growth and health of the construction industry, and that means working with women- and minority-owned small businesses. We offer secure surety bonding services and specialize in helping small- to medium-sized businesses across the board. With 25 years in business, we bring extensive backgrounds in banking and business, are completely results-oriented and create long-term relationships with our clients. This includes the full SBA Contractor’s application package which is an essential tool for WBEs and MBEs looking to get established.
If you’re working with a W/MBE in need of bonding to bid on your contract, point them our way, and we’ll be happy to help. Together we can all take the contracting and construction industry to the next level. Get in touch with us for more information today.