So, you’re a general contractor bidding a project and the contract requires an MBE participation goal of 8% and you aren’t sure where to turn. Maybe you’re a minority or woman owned company working in the realm of the construction industry and want to find more work. Today we’re going to look at some of the various programs available for contractors, subcontractors and construction suppliers that are women and minority-owned business enterprises. We’ll discuss programs from the federal level all the way down to local municipalities.
The US Department of Transportation (USDOT) has established a Disadvantaged Business Enterprise (DBE) Program that was created by the Safe, Accountable, Flexible, Efficient Transportation Act: A Legacy for Users. The program was established to provide opportunities and increase participation for state and local transportation agencies that receive financial assistance from the USDOT which includes the Federal Highway Administration, Federal Aviation Administration and the Federal Transit Administration.
Each agency receiving federal funds for projects are required to set annual DBE participation goals as well as contract-specific DBE subcontracting goals. To fulfill those goals, the DBE subcontractor must provide a commercially useful function. In instances where the participation goal is not met, the prime contractor must prove that they made Good Faith Efforts to meet the goal.
A DBE is classified as a for-profit small business, as defined by the US Small Business Administration, that is at least 51% owned by one or more individuals who are both socially and economically disadvantaged or if it’s a corporation, then 51% of stock is owned by one or more such individuals and whose management and daily business operations are controlled by those individuals.
Another item that factors into DBE certification includes the personal net worth of the owner(s) excluding their ownership interest of the business and interest in their primary residence. Minority Business Enterprises (MBE) and Women Business Enterprises (WBE) both fall into this category with an MBE being at least 51% owned and controlled by a minority group and a WBE being at least 51% owned and controlled by women. Net worth limits can vary greatly from agency to agency.
The USDOT also requires that all agencies in a state receiving federal funds must create and maintain a Unified Certification Program (UCP) with mandatory reciprocity throughout all agencies in the given state. The UCP will be responsible for certifying companies and maintaining a DBE directory that will be publicly available electronically, on the internet as well as in print.
The USDOT is not the only federal agency that requires MBE participation. The Small Business Act requires that all contracts solicited that may result in an award over $1 million for construction and $500,000 for any other contract, the prime contractor must submit a subcontracting plan detailing how they will use MBEs on the project.
Now let’s look at a small sample of programs available on the state and local levels. These programs are generally designed to increase the use of MBEs by providing training and networking opportunities, helping agencies identify MBEs that provide services and supplies they procure and in some instances setting participation goals on contracts. They also are responsible for certifying companies and maintaining directories.
The Maryland General Assembly enacted legislation in 1978 to create an MBE program. Currently, it requires state agencies to make every effort to achieve an overall goal of 29% MBE participation on the total dollar amount of all procurement contracts and is overseen by the Office of Minority Affairs.
In North Carolina, the program is overseen by the Office for Historically Underutilized Businesses. The state has verifiable goals of 10% on construction projects and requires local agencies to set goals on projects receiving state funds.
Massachusetts has a similar policy to North Carolina. They have a 10.4% combined M/WBE participation goal for construction contracts and a 17.9% combined goal on design contracts. Massachusetts also requires that local agencies requiring state funds for projects set goals for construction projects.
In New Jersey, the Division of Minority and Women Business Development has recently merged with Department of Treasury and while they don’t have specific MBE participation goals they do have a small business set-aside program with a goal of awarding 25% of contracting dollars to small businesses.
Virginia has a 42% goal for participation through their Small, Women-owned, Minority-owned Businesses Program (SWaM). Some agencies within the state do have separate MBE and WBE participation goals.
Some states have MBE offices to promote and increase the participation but don’t have any statewide MBE or WBE goals for construction procurement.
In New York, the Division of Minority and Women-Owned Business Development’s mission is to “promote equality of economic opportunities for MWBEs and to eliminate barriers to their participation in state contracts.”
The Florida Office of Supplier Diversity has advocacy and outreach initiatives like their MatchMaker Conferences to connect MBE’s with state agency purchasing specialists. Consequently, while the state government doesn’t have participation goals for contracts, cities like Orlando have goals of 18% for MBEs and 6% for WBEs and the City of Tallahassee has goals based on the types of services being solicited. They also offer a Mentor-Protégé Program to support women, veteran and minority small businesses.
Not all states have an agency or department dedicated to promoting MBEs. The District of Columbia doesn’t have anything dedicated solely to minority businesses but they do have a Department of Small and Local Business Development that requires an overall participation goal of 50% by local Small Business Enterprises which covers MBEs and WBEs.
If you are a general contractor you should make sure you understand the rules and regulations regarding MBE participation for the Federal, state or local agency you are submitting bids to, including those on commercially useful functions and Good Faith Efforts. These agencies are also a great source for locating MBE contractors as they are required to keep directories on certified subcontractors.
Other ways to locate MBE subcontractors is to publish advertisements in ethnic and minority publications and with your local minority contractors’ associations. Consider attending outreach programs sponsored by state and local MBE Program offices or local contractors’ associations.
If you are an MBE contractor and are looking for ways to grow your business, you should ensure your company is certified with your state and local agencies as well as any states where your company is licensed to do work. In addition to certification, these agencies can also assist in training, networking and compliance.
Another excellent source for finding subcontracting opportunities for your MBE are contractors’ associations like the National Association of Minority Contractors, National Hispanic Construction Association, National Black Contractors Association, and the National Association of Women in Construction. These organizations have local chapters that are familiar with the construction industry in your area and prove a valuable resource for your company.
6 thoughts on “Working With Women & Minority Business Enterprises in Construction”
I have no doubt the UCP was designed with the best of intentions but I believe the net worth clause is counter-productive. Many small businesses are set up a Sub-S corporations (versus C-Corp) which means the profits are distributed to the owner because in all likelihood the personal tax rate is lower than the 35% Corporate tax rate. Most owners take their “distributions” personally and then have those funds (after taxes) available to re-invest in the business. Under these conditions it is very likely that a business owner will soon have a personal net worth in excess of $1M but in reality is loaning the business money for cash-flow and growth.
Consider a small business that has $5M in sales and earns a very modest 3% profits. Most rational people would rather invest their money is something far safer and with a much higher return on investment but women small business owners are generating jobs (usually for other women). After 7 years of business, earning just 3% and assuming tremendous risks, this women business owner would likely not qualify under UCP. If that women owner invest her profits and got a 7% return on her investments she would be kicked out of the program between Year 4 and 5! Again, this small business with $5M in sales and only a 3% profits. A slightly larger or a better run business (higher gross profit) would be ineligible even sooner.
So what value does this net worth clause provide? It appears to favor inexperienced or incompetent businesses. I don’t know many GCs who prefer start-up subcontractors over experienced subcontractors and no GC wants a subcontractor operating at close to or below profitability. I’m not sure I understand why the DOT wants to support unsuccessful WBEs and not successful WBEs. Supporting good role models seems like a no-brainer and yet this program is set up to exclude well run and experienced WBE’s. The UCP effectively tells GC’s they cannot use the WBE subcontractors that will most likely succeed, pay its employees and be there in the future.
Supporting WBE’s is a great idea but the DOT telling GC’s which women they can support seems short-sided and irresponsible.
Thanks for the insightful comment, Dave.
Thanks for posting this article. 🙂
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Thank you for posting this article.
I’m glad I found this article.
DOT is trying is give new unsuccessful WBE company a chance. I am sure you had to start your business as unsuccessful startup company or new zero experienced startup subcontractors somewhere ? Somebody trusted you and took risk when they gave you the first few opportunities today you are successful contractor and commenting on not to give opportunity to new startup subcontractor.