Study: City should steer more work to minorities

CINCINNATI — In an effort to help more minority and women business owners land bids for city jobs, Cincinnati could soon adopt changes recommended in a disparity study conducted by an out-of-state firm.

At stake are hundreds of millions of dollars in city contracts — most of which have been awarded to companies owned by white men in recent years.

Mayor John Cranley pledged during his 2013 campaign that he would work to give minority and women business owners a better shot at winning those contracts. Failure to do that, he said, would put Cincinnati farther behind cities that have done a better job at leveraging city contracts to grow stronger minority- and women-owned businesses.

"Big picture — we want a city that works for everybody," Cranley said. "This is about doing what's right but also about being smart about how we're going to outpace our competitors. Those other cities are our competitors."

The proposed changes are the result of a study of Cincinnati's business contracts and history of dealing with minority-owned businesses. The so-called Croson study - named after a 1989 U.S. Supreme Court case that dealt with the Equal Protection Clause and municipal contracts - was conducted by a California-based consulting firm.

The city hired the firm to conduct the study and find any patterns of disparity in how the government has awarded contracts. The Croson decision requires the documenting of those disparities in order for any attempt to steer more work to women- and minority-owned companies to withstand legal challenges.

Cincinnati City Council could approve some or all of the recommendations as soon as Wednesday. Under the proposed changes, the city could:

• Give extra consideration to bids for large professional service contracts when women- and minority-owned companies are included.

• Allow the city to accept slightly higher bids from women- and minority-owned businesses on large contracts for supplies and services. (City Manager Harry Black said this would be used sparingly.)

• Require city departments to get at least one price quote from a woman- or minority-owned business for construction projects that don't use the formal bidding process.

• Set specific goals for big companies when it comes to awarding subcontracts to women- and minority-owned companies based on the number of companies available to do the work.

• Require big companies to document how hard they tried to meet those goals and penalizing those that don't try hard enough.  

• Give extra consideration to big companies if they work to reduce the unemployment rate among black residents by providing entry-level on-the-job training, job shadowing and other opportunities.

The report also has suggested changes to improve the city's Small Business Enterprise program, which is the city's current program that tries to steer contracts to small companies. The program includes small businesses owned by white men in addition to those owned by women and minorities. Among those recommendations are to:

• Break a larger number of big contracts into smaller ones to make it easier for small businesses to bid on them.

• Eliminate so-called "master agreements," which give companies three years worth of contracts with the city.

• Give companies more time to respond to bids.

Cranley said he expects council to approve the recommendations. So does Sean Rugless, CEO of the Greater Cincinnati & Northern Kentucky African American Chamber of Commerce.

"This gives the city a very important decision to make," Rugless said. "Will it embrace an economic development strategy to ensure that every business segment in this city can grow?"

Working to Change Years of 'Dismal' Results

Rugless has been advocating for a change in Cincinnati's purchasing program since 2009. That's the year former Mayor Mark Mallory formed the OPEN Cincinnati Task Force, which Rugless co-chaired.

The task force was designed to develop recommendations to help women and minority business owners win more city contracts. Mallory took that step just weeks after the NAACP Cincinnati chapter took a vote of "no confidence" in his leadership over the city's contracting results, especially those related to black-owned businesses. 

The OPEN recommendations that didn't cost the city any money were implemented quickly. But those that required extra funding stalled because the city grappled with other budget pressures.

The task force suggested more outreach to women and minority business owners, which the city did. But it also recommended hiring an economic inclusion consultant to conduct random compliance reviews. The city didn't create that position because of the cost associated with it.

In 2011, Cincinnati Councilman Charlie Winburn unveiled his Cincinnati Competitive Edge Initiative, a proposal he developed with business owners and consultants to try to give small companies more support in winning contracts with the city.

Council passed a version of that proposal, and city officials hired consultants to make changes and implement many of the OPEN recommendations that had stalled.

But there was little progress.

Steve Love, a consultant who worked with the city for several years, said that's because the city's Small Business Enterprise program was never designed specifically to help women- or minority-owned businesses.

"The SBE program has been successful in terms of getting small businesses more contracts," he said. "What it has failed to do is get minority and women businesses involved in the city procurement in a significant way. The results are dismal for minority and women businesses."

Years ago, the city had a contracting policy that channeled work to minority-owned businesses through a "set-aside" program. 

But city officials suspended that program in 1999 after a lawsuit filed by a local white businessman who lost a contract to a minority-owned company that had submitted a higher bid.

At the time, the city did not have a Croson study to show that its race-based program had been narrowly crafted to address disparities caused by a pattern of discrimination.

Croson studies are named after the U.S. Supreme Court's City of Richmond v. J.A. Croson Co. decision, which found Richmond's attempt to award more city contracts to minority-owned businesses to be unconstitutional. The court's decision now requires cities to show evidence of past discrimination to legally justify programs that use race and gender as consideration to award contracts.

Even with such studies in place, governments are still commonly sued after using practices aimed at awarding more contracts to businesses owned by women or minorities.

Because of this, the City of Cincinnati paid the Oakland, Calif., consulting firm Mason Tillman Associates about $1 million to conduct a study which took more than a year to complete.

Cranley said he's hopeful the proposed changes will withstand any legal challenges.

"The other cities (with Croson studies) have had litigation and have survived," he said. "I hope that we'll be as convincing."

'Excluding A Class' To Remedy Discrimination?

The lawyer who helped dismantle the city's set-aside program said he isn't so sure that commissioning a Croson study will be enough to avoid legal troubles, despite Cranley's confidence.

Kevin McDermott, a partner in the Columbus office of Barnes & Thornburg, represented local road contractor Ray Prus & Son in the 1999 lawsuit.

McDermott said while it's an easy sell politically to create programs to help women and minority business owners, the courts are more difficult to convince.

"Legally, the courts have told us that whenever the government gets in the business of handing out favors or creating burdens and the deciding factor is race, the courts need to view those types of arrangements with skepticism," he said. "In reality, they're excluding a class because of something they can't do anything about — their gender or race."

Of course, that's exactly what the new study argues has been happening to women and minority business owners for years.

The report examined city contracts awarded between Jan. 1, 2009 and Dec. 31, 2013. A total of 10,228 prime contracts were awarded during those five years.

Prime contracts are typically larger, and companies that win them are responsible for completing projects. Often they hire subcontractors to finish smaller pieces of the job.

All those prime contracts represented more than $1.2 billion.

A total of 1,985 different businesses got those jobs.

But 70 percent of the total dollars the city paid went to just 96 companies.

And about half the money — more than $615 million — went to a total of 38 companies, all owned by white men.

"If you look at the statistics," Cranley said, "I think it's pretty clear there's a disparity."

The Croson study didn't include a specific goal for how many contracts should be going to women- and minority-owned businesses. The goals will be set depending on the type of contract the city is awarding and how many women- and minority-owned businesses are available to do the work, Black said.

But Cranley and other supporters of programs that aim to award more contracts to women- and minority-owned businesses argue the practice will give those businesses better opportunities to grow, hire additional employees and boost the region's economy as a whole. 

Creating Opportunities

Steve Hightower said the same concept worked for him three decades ago.

His company, Hightowers Petroleum Co., got its first contract in 1981 — a set-aside from the state of Ohio, Hightower said. BP had the state contract for about 30 years before that, he said, but the set-aside opened the door for the company to compete.

"You couldn't even get in the game until the state's program opened the market up and said we're going to give the minorities an opportunity to bid on this contract," he said.

Now, all these years later, Hightowers Petroleum does business in 37 states, Mexico and Canada and has revenue of more than $300 million per year, Hightower said. The petroleum company and Hightower's other business interests in Middletown employ 75 people.

"It started with that one opportunity," he said. "You can't win if you don't have an opportunity to play."

Hightower said the right changes in the city's contracting program could help create other, big minority-owned companies like his.

Of course, for that to happen, women- and minority-owned companies have to be willing to bid on city contracts.

Hightower acknowledged that could be a hurdle for the city — at least initially.

"The African-American community, specifically, is very skeptical of folks bearing gifts," he said.

That's because there have been so many promises and programs in the past that haven't panned out, Hightower said.

'Business Is Not Fair'

Because of all those letdowns, there were plenty of times when Eric Ruffin was tempted to stop trying.

Ruffin, co-owner of ABEL Building Systems, spent more than a decade trying to win a contract to monitor city alarm systems. His company finally won it, he said, but it took countless meetings, trips to City Hall, emails and letters to finally get to the point where he felt like the bid document gave his company a fair shot.

"The fact is, business is not fair, and business is not equal, and business is hard work," he said. "The city wants to change. The city wants to make things fair because it saves the city money. But we can't sit back and wait for the Croson study to be our rescuer and our savior. We, as business owners, need to say, 'Hey, I'm out here, and I can win. Just give me a chance.'"

But if the changes are approved and the city starts to award more contracts to women- and minority-owned businesses — or maybe especially if that happens — supporters of the changes expect opposition.

That's why Alfonso Cornejo, president of the Hispanic Chamber Cincinnati USA, said he hopes the city will implement the recommendations gradually.

"The possibility of litigation is still there," Cornejo said. "But I think it's going to make a difference. And we need to make a difference."

If winning city contracts can help minority- and women-owned businesses grow stronger and bigger and hire more employees, that could go a long way in closing the vast divide between our wealthy and poor neighbors in the region, said Janet Reid.

Reid was one of the lead consultants for the Economic Inclusion Advisory Council that Cranley appointed shortly after he took office in 2014.

"In some ways, we are still a bit of a tale of two cities," she said. "We have some fabulous things going on. But then we have a lot of things to do."

Cincinnati USA Regional Chamber CEO Jill Meyer said she hopes business owners who view the changes as taking away their companies' opportunities will be able to focus on the big picture - the positive impact this could have on the region's economy.

"Will there be some opportunities that now are shared or lost? Probably," Meyer said. "But I think if people focus on leveling the playing field and the results of doing that, which should result in more economic opportunities for everybody, that's a win-win."

That will be the biggest challenge, said the African-American Chamber's Rugless: Convincing the region's white, male business owners that the Croson study and its recommended changes can be good for everyone — not just women and minorities.

"It actually opens up new markets for everyone," Rugless said, noting that businesses owned by white men will be able to bid on work aimed at women and minorities if they establish legitimate partnerships and joint ventures with companies owned by women and minorities.

"Everybody can still make money," he said. "It actually grows the pie versus shrink the pie."

Time will tell whether everyone sees it that way.

Cincinnati City Council's Economic Growth and Infrastructure Committee scheduled a special meeting to discuss the Croson study at 11:30 a.m. Sept. 30 in Council Chambers. The full council could vote on the study's recommendations that same afternoon.

CLICK HERE TO READ THE REPORT

Lucy May writes about the people, places and issues that define our region – to celebrate what makes the Tri-State great and also shine a spotlight on issues we need to address. She has been writing about women- and minority-owned businesses in Greater Cincinnati for more than 17 years. To read more stories by Lucy, go to www.wcpo.com/may. To reach her, email lucy.may@wcpo.com. Follow her on Twitter @LucyMayCincy.