Disparity Study Update (DS II)

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Executive Summary

INTRODUCTION

In June, 1997, Pima County Government (Pima County) implemented a Minority- and Women-Owned Business Program.  This program is scheduled to sunset in June 2002, if there was no compelling governmental interest to continue utilizing race/gender-conscious remedies as established in the U.S. Supreme Court case, Richmond v. Croson.  Pima County commissioned D.J. Miller & Associates, Inc. (DJMA), in July 2001, to conduct a disparity study update (DS II).  This study responds to the ensuing need to establish a factual predicate consistent with the requirements of Croson that determines the foundation for narrow tailoring a program targeting minority and women business enterprises (MWBEs).  In conducting this disparity study, DJMA collected and developed evidence regarding the nature and extent of discrimination against MWBEs, if any, and other experiences that created barriers to equitable participation with the County. 

CONCLUSIONS

In determining whether there is continuing justification for the current race/gender-conscious program, DJMA conducted several analyses for Pima County: statistical analysis of disparity in procurement, procurement analysis, survey analysis, legal analysis, anecdotal analysis, race-neutral analysis and private sector analysis.  Based on available data, DJMA made the following conclusions. 

Overall, regarding disparity in MWBE participation in the County's contracting activity, DJMA found the following:

Table E.1

Disparity By Procurement Type

Reflecting Statistical Significance

Source: Pima County Contracts, Purchase Orders and Payments on Contracts Data; DJMA

N/D-Disparity Ratios are not defined, due to zero utilization

DJMA then sought to determine the reasons for these statistical findings.  The procurement analysis provided insight into the reasons for the disparity.  Based on the study's findings, internal operations contributed to the outcomes of the statistical analysis in the areas listed below: 

·        MWBE program objectives are not thoroughly integrated into purchasing operations;

·        Sewer management has not fully embraced their responsibility in the success of the MWBE program; 

·        Outreach is performed primarily by the MWBE staff;

·        The County's efforts to contract with MWBES are focused on only those areas required by the disparity study findings; and,

·        Purchasing staff's understanding of the need for and the reasons behind the MWBE program objectives are not uniform or consistent.

Without stronger organizational accountability and more clearly defined objectives, it will be difficult to correct disparities in identified commodity areas.  Further, the findings suggest that MWBEs continue to have difficulties obtaining significant contracts with the County in both construction and procurement. 

DJMA not only sought to determine the internal factors that have contributed to the disparity, but also looked at factors external to the County.   DJMA performed a statistical analysis on survey data gathered during this project, using as measures of capacity, years of experience, start-up monies and number of full-time employees. ^[1]   The analysis revealed that the capacity of MWBEs does not fully explain the existence of the disparity.  Using gross revenues as an indicator of capacity, there is an indication that, while white male-owned firms have greater capacity than MWBEs in projects valued greater than $5 million, all groups have similar capacity for projects valued at less than that amount. Therefore, the argument that MWBEs are not winning contracts because they do not have the capacity to perform finds limited support in these data.  Management and technical assistance to address issues such as inability to obtain bonding and financing are available in the Tucson MSA and are being utilized by MWBEs.  However, anecdotal interviews did reveal that bonding continues to be an issue for some MWBEs.  Given the relative absence of data indicating that capacity, bonding, and finance are strong contributing factors in disparity at the County, race and gender, along with certain internal operations, can be considered important factors in the existence of disparity.

DJMA's private sector analysis revealed mixed findings.  The survey revealed that MWBEs are obtaining private sector work at the same rate as white male-owned firms.  However, the building permits and specialty permits analysis, which relates primarily to construction, shows that white male-owned firms are obtaining the majority of private sector work.  The results supporting this conclusion are as follow:

·        The survey data collected in the Tucson MSA is consistent with national results.  Minorities had higher denial rates than non-minorities for bonds.

·        Survey results indicate that of the respondents, MBEs placed more bids in the private sector and WBEs more bids with the public sector.

·        Survey results also revealed that, as prime contractors, regardless of race and gender, all firms won evenly in the private sector.  However, white male-owned firms had a higher success rate with the City of Tucson than minority groups.

·        Firms owned by white males received 83.33 percent of the number of building permits issued by Pima County and 99.79 percent of the specialty permits.

·        On the basis of permits data, MWBEs received 19 (0.21 percent) of the specialty permits and 2 (16.67) of the building permits issued by the Pima County.  While 2 building permits were issued to Hispanic-owned firms, specialty permits were issued to 5 WBEs and 14 Hispanic-owned firms.

These results suggest that the County has a basis for maintaining its MWBE program.  However, the County should consider expanding its race/gender-neutral goal programs.  By so doing, the County will be positioned to transition to a race/gender-neutral environment in the event that its response to the findings and recommendations of this report leads to, in the next few years, the significant reduction or elimination of disparity in contracting across all procurement categories.  In considering this transition, the County needs to develop programmatic initiatives that will ensure that senior level commitment to inclusion of MWBEs is embodied in the day-to-day activities of the organization and that the County is not doing business with contractors who discriminate.

STRUCTURE OF THE REPORT

The report is divided into eleven chapters and five appendices:

Chapter I:            Introduction

Chapter II:            Legal Framework

Chapter III:            Procurement Analysis

Chapter IV:      Statistical Methodology and Discussion of Data Sources and Issues for MWBE Availability, Utilization and Disparity Analysis

Chapter V:            Statistical Analysis of MWBE Availability

Chapter VI:            Statistical Analysis of MWBE Utilization

Chapter VII:            Statistical Analysis of MWBE Disparity in Payments and Contracting

Chapter VIII:            Anecdotal Comments from the Marketplace

Chapter IX:            Consideration of Race-Neutral Alternatives

Chapter X:            Analysis of Private Sector Disparities

Chapter XI:             Recommendations and Conclusions

Appendix A:            Review of Croson and Its Progeny

Appendix B:            Statistical Tables

Appendix C:             Survey Instrument

Appendix  D:            Anecdotal Instrument

Appendix E:            Glossary of Terms

FINDINGS

Below is a discussion of the findings of the DS II and DJMA's recommendations based on those findings.

Chapter Summaries

I.             Introduction

Chapter I provides an overview of the DS II and the organization of the report.

II.                Legal Framework

Because of Proposition 209 in the State of California, the Ninth Circuit Court of Appeals has had to balance the Equal Protection Clause and states' rights.  The Ninth Circuit found that Proposition 209 is not inconsistent with the Equal Protection Clause.  States do have the right to establish definitions of discrimination through their legislative processes.  And, those definitions can be broader than those established by the U.S. Supreme Court. However, states that have not taken similar actions as the State of California are subject to the standard established by the U.S. Supreme Court in City of Richmond v. J.A. Croson. For example, in California, outreach to MBEs is considered race/gender-conscious activity, whereas in the Ninth Circuit and other jurisdictions, it is not.

III.             Procurement Analysis

Overall, the Pima County procurement system is effective and efficient.  County staff are well aware of the regulations governing procurement and appear to follow the regulations very closely.  With the exception of informal purchases under $5,000, the Procurement Department's two divisions receive all requisitions for goods, non-professional services, professional services and construction services.

The MWBE Program is not as effective due to limited resources, low staffing levels and the overall culture of Pima County.  Although buyers, contract specialists and other County staff with procurement authority or decision-making power are aware of the MWBE Program, the effort of extending bid opportunities to MWBE firms appears to occur most effectively at procurement levels that require MWBE participation.  Therefore, the MWBE Program has not been integrated fully into the day-to-day operations of Pima County and without the Ordinance, contracting with MWBE would likely be impacted.

Outreach efforts, technical assistance, business development and matchmaking are all areas where additional resources and strategic planning can be deployed to better effectuate the goals and objectives of the MWBE Program.  Although Pima County's extensive outreach and relationship building within the small business community is commendable, strategically, some of the funds and resources dedicated to this area, may be better utilized in other ways besides sponsoring and attending numerous seminars.

In addition, County staff training sessions about the MWBE are needed to assist in the integration of the Program into daily procedures.  Interviews with some County staff revealed that they were not fully aware of all the requirements, procedures, and especially the reasoning behind the program; and therefore, did not fully "buy into" the objectives of the Program and understand their involvement and responsibility in assisting the County to achieve its objectives. 

IV.             Statistical Methodology and Discussion of Data Sources and Issues for MWBE Availability, Utilization and Disparity Analysis

This chapter contains a detailed discussion of the statistical methods used in the disparity study, for determining availability and utilization of MWBEs, and in calculating disparity.  The chapter begins with a brief review of important concepts: (a) the relevant market; (b) definition of businesses' readiness, willingness, ability, and capacity and how they affect measurement of availability; (c) measures of utilization and disparity; and (d) statistical significance.  The critically important task of data collection is reviewed here, with a summary of data sources relied upon for relevant market availability and utilization determinations.

V.              Statistical Analysis of MWBE Availability

The first major task of this DS II was the determination of MWBE availability (A), the denominator of the disparity ratio, U/A. ^[2] There are two components in calculating availability:  (1) determining the relevant market and (2) developing availability measures. 

Relevant Market

The analysis led to the conclusion that the relevant market be defined as the Tucson metropolitan statistical area (MSA) or Pima County for Architecture and Engineering and the State of Arizona for all other procurement types. While the actual calculations of market share and share of vendors by geographical region would suggest a more expansive relevant market, particularly for goods, it would be difficult for Pima County's MWBE program to offset identified discrimination in a market area much larger than the State of Arizona.

Availability

This chapter provides availability estimates supported by data from a variety of sources: Pima County, the City of Tucson, Small Business Administration PRO-Net, ^[3] and U.S. Census Bureau; lists of certified entities; and surveys.

Construction

For the State as the relevant market, Ready, Willing and Able (RWA) availability estimates for construction ranged from 14 to 31 percent for MBEs.  WBE availability ranges from 9 to 24 percent.  For the State of Arizona, 12.60 percent of all construction contractors enumerated by the 1997 Census SMOBE/SWOB were MBEs; WBEs were 9.54 percent (Table E.2).

Table E.2

Construction Availability Estimates

Source: SMOBE/SWOB, Bidder and Vendor lists from Pima County, SBA Pro-Net, DJMA

While Census counts provide some measure of potential MWBE construction subcontractor availability, it is often very difficult to obtain estimates of actual subcontractor availability.  One reason is that MWBEs do not certify with public agencies specifically as subcontractors, thus, subcontractor availability estimates are limited to census data.

Goods and Non-Professional Services Procurement

Table E.3 contains RWA and census-based estimates of availability of MWBEs in the Commodities category. 

Here, for the state, the RWA estimates indicate about 9 percent MBEs and 19.5 percent for WBEs, respectively.   In comparison, census availability was 14.6 percent for MBEs and 18 percent for WBEs.

Table E.3

Goods and Non-Professional Services Procurement Availability Estimates

Source:  Pima County Vendor File, SMOBE/SWOB; DJMA

MWBE availability estimates for services address Architectural and Engineering and  services (Table E.4). For Architectural and Engineering, RWA estimates ranged from 12.4 to 27.9 percent for MBEs, 4.65 percent to 10.05 percent for WBEs with Pima County as the relevant market.  For professional services, RWA ranges were 8.7 to 10.23 percent for MBEs and 21.7 to 26.7 percent for WBEs with the State as the relevant market.  These ranges were derived from Pima County's vendor and bidders lists.

Table E.4

Professional Services Availability Estimates

Pima County and State of Arizona

Source:  Pima County Bidders and Vendors List, SMOBE/SWOB; DJMA

Overall Availability Ranges

From the preceding availability calculations, a set of availability ranges for both RWA and census estimates was determined for each procurement category.  According to Table E.5, the ranges of availability estimates are very broad for each procurement category.  As discussed in Chapter IV, each data source is quite different in terms of coverage, comprehensiveness, and interest of the business population in competing for public sector work.

Table E.5

MWBE Availability Estimates

Pima County Based on Relevant Market

 Source: Pima County; SMOBE/SWOB; DJMA

Capacity

An important element in estimating MWBE availability is MWBE capacity. The report found evidence of a moderate number of MWBEs with annual revenues sufficient to handle subcontracting and small prime contracting projects. 

·        From the SBA's PRO-Net database, MBEs and WBEs in construction have 130.91 percent and 142.54 percent of the capacity of all firms. 

·        In services, MBEs have slightly greater capacity (101.47 percent) as compared to all firms and WBEs are about 70 percent as capable as all firms, based on dollar value of average sales.

·        MBE capacity is rather low, as measured by sales in the SMOBE/SWOB data.  Hispanic construction firms, for example, only had about $565,512 in annual sales¾considerably lower than the average for all firms. WBEs are almost in par on average annual sales with the average for all firms.

VI.            Statistical Analysis of MWBE Utilization

The second major task of this DS II was the determination of MWBE utilization (U), the numerator of the disparity ratio, U/A.  Presented here are measures of utilization for each category individually by MWBE status.

Construction

Contract Awards

Between 1996-2000, Pima County awarded a total of $197 million in prime construction contracts based on Pima County's contract award data. Of this amount, 46 percent ($90.5 million) was awarded to contractors in the State of Arizona (Table E.6). Within the State, MBEs and WBEs were awarded 3.2 percent and 16.4 percent of the prime construction contracts respectively. Of the total prime contracts data, 1.6 percent were awarded to MBEs and 7.6 percent to WBEs.

Table E.6

Pima County Utilization of MWBEs

Prime Construction Contracts Data, 1996- 2000

(in Dollars and Percent)

Source: Pima County Contract Awards Data, DJMA

Table E.7

Pima County Utilization of MWBEs

Subcontractor Construction

Contracts Data, 1996- 2000

 (in Dollars and Percent)

Source: Pima County Contract Award Data, DJMA

MWBEs were largely utilized in construction subcontracting.  MBEs received 74.5 percent and WBEs 10.6 percent of contract awards in the relevant market.(See Table E.7)

Purchase Order Data

Within the State, Pima County cut $50,555 in construction P/Os over the study period (Table E.8). The County issued 0.46 percent with MBEs and 0.02 percent with WBEs. The proportion of P/Os cut to these groups were the same within the State and overall.

Table E.8

Pima County Construction Utilization of MWBEs

Dollar Value of Purchase Orders

By MWBE Status and State

FY 1996-2000

(in Dollars and Percent)

                  Source: Pima County Purchase Order Data, DJMA

Note: There is no P/O data for FY 1996-1998

According to payments data, Pima County paid over $79.2 million in construction for the study period. Of this, $62.0 million was paid out to firms located within the State.  Within the State, WBEs accounted for 29.68 percent and MBEs for 2.05 percent of all disbursements (Table E.9).

Table E.9

Pima County Construction Utilization of MWBEs

Payments Data

By MWBE Status and State

FY 1996-2000

(in Dollars and Percent)

                  Source: Pima County Payments Data, DJMA

Note: There is no AP data for FY 1996

Goods & Non-Professional Services Procurement

Contract Awards

Contract award data was available only for non-professional services.  Pima County awarded over $20.3 million in FY 1996-2000 in this procurement category.  Over $2.0 million was awarded to firms within the State of Arizona.  MBEs received 3 percent and WBEs 10.4 percent of these awards overall and 9.8 percent and 19.9 percent respectively within the State.

Table E.10

Pima County Utilization of MWBEs

Non-Professional Contract Data, FY 1996-2000

(in Dollars and Percent)

Source:  Pima County Contract Data; DJMA

Within the State of Arizona, Pima County cut $25.1 million in P/Os in goods & non-professional services procurement (Table E.11). The County spent 1.67 percent of the State total with MBEs and 0.21 percent of the total with WBEs.   As a share of total spending, WBEs accounted for 3.6 percent and MBEs accounted for 1.4 percent.

Table E.11

Dollar Value of Purchase Orders

Goods Procurement

FY 1998-2000

Source: Pima County Purchase Order File, DJMA

In non-professional P/Os, $252,123 were cut by Pima County for the study period within the relevant market (State of Arizona).  Overall, $1.04 million worth of P/Os were disbursed in this procurement type.  Only 0.48 percent of these were paid out to MBEs and 44.3 percent to WBEs.  Within the State, these groups received 0.49 percent and 44.3 percent respectively (Table E.12). 

Table E.12

Pima County

Dollar Value of Purchase Orders

Non-Professional Services

FY 1996-2000

Source:  Pima County AP_PO Orders Data; DJMA.

Note:  No data available for FY 1996-1998

According to Pima County payments data, the County spent over $22 million in Goods and Non-Professional Services for the study period. Within the State, WBEs accounted for 12.51 percent of disbursements and MBEs for 8.01 percent of the payments of a total of $9.8 million spent in the State.

Table E.13

MWBE Utilization in Goods & Non-Professional Services

Payments Utilization

FY 1997-2000

Source: Pima County A/P Data, DJMA

Architecture and Engineering Services and Professional Services Procurement

Pima County awarded approximately $73.6 million in prime contract awards in Architectural and Engineering (A&E) services. While WBEs received a negligible amount of A&E contract awards (1.7 percent), MBEs received 47.6 percent within the MSA. Asian and Hispanic firms received majority of the MBE contract awards.

Table E.14

Architectural and Engineering Services

Value of Prime Contract Awards

By MWBE Status

FY 1996-2000

Source: Pima County Contracts Data, DJMA

MBEs received 51.4 percent and WBEs 9.9 percent of A&E subcontract dollars.  Within the MSA, of a total of over $16.66 million, these groups received 54.4 percent and 10.9 percent respectively (Table E.15).

Table E.15

Pima County

Sub Contract Awards Utilization

Architectural and Engineering Procurement

FY 1996-2000

Source:  Hard Copy Sub Contract Data, Pima County; DJMA.

In professional services contracting, MBEs received 2.3 percent and WBEs 17.7 percent of contract awards.  Overall, these percentages rose to 5.4 percent and 28.6 percent respectively for these groups within the State. (See Table E.16)

Table E.16

Professional Services Contract Awards

MWBE Utilization

FY 1996-2000

Source:  Hard Copy Contract Data, Pima County; DJMA.

A total of $ 66,990 was paid out for FY 1999 and FY 2000 in A&E P/Os.  While MBEs received 0.04 percent, WBEs received 24.86 percent of P/O dollars.  All P/Os in A&E were outside the MSA. (Table E.17)

Table E.17

A&E Procurement

Dollar Value of Purchase Orders

All Zips

FY 1996-2000

Source:  AP_PO Orders, Pima County; DJMA.

Table E.18 contains data on reported MWBE utilization in professional services at  Pima County  for 1996-2000 based on purchase order dollars.  Overall, over $2.5 million P/Os were cut by the County in professional services, 94.7 percent of which was awarded to white male-owned firms. Within the State, $824,245 P/Os were disbursed, and MBEs received 0.4 percent and WBEs received 13.61 percent.

Table E.18

Professional Services Utilization

Value of Purchase Orders (POs)

By MWBE Status and State

FY 1996-2000

Source: Pima County Purchase Order Data, DJMA

A&E payments were valued at $76.9 millions.  MBEs received 12.81 percent of payments and 27.25 percent within the MSA.  WBEs received only 1.02 percent overall and 2.88 percent in the MSA.

Table E.19

Pima County

Architectural and Engineering Payments Utilization

FY 1996-2000

Source:  AP Contract Data; Pima County; DJMA.

A total of $42.4 million was paid out to professional service firms within the State of Arizona for FY 1996-2000. This accounted for 89 percent of the total payments in professional services by the County. MBEs received 3.89 percent and WBEs received 0.56 percent of the payments within the State.

Table E.20

Professional Services Utilization

Payments Utilization

By MWBE Status and MSA

FY 1996-2000

Source: Pima County Purchase Order Data, DJMA

VII.           Statistical Analysis of MWBE Disparity in Payments and Contracting

The purpose of the disparity analysis is to determine differences between availability and utilization of MWBEs.  The most accepted method is to calculate disparity ratios (percentage utilization divided by percentage availability) by procurement category, year, and MWBE status.

Statistical and Practical Significance of Disparity Ratios

When calculating disparity ratios, the immediate question is whether differences between the numerical estimates and one (denoting "parity") are statistically significant.  Most, if not all, of the disparity ratios calculated for this report were significantly different from one. ^[4]   This result may be due, in part, to the large number of observations in the data. ^[5]

Another important consideration is the extent to which statistically significant differences can be taken seriously-i.e., what is the "practical significance" of the results?  For instance, a disparity ratio for MWBEs of 0.95 is not necessarily a (practically) significant basis for a race/gender-conscious program.

Construction

In Construction, white male-owned firms are overutilized based on any measure of utilization.  WBEs are also significantly overutilized, when contract awards or payments on contracts are used to measure utilization.   MBEs are underutilized at the Prime levels by any measure of utilization. This statistic is significant for MBEs for all measures.

Goods and Non-Professional Services

In Goods and Supplies procurement MBEs and WBEs are significantly underutilized. White male-owned firms are significantly overutilized, but the ratio does not reach statistical significance. Non-Professional Service contracts do not depict consistent results across the two measures of utilization. With contract awards, white male-owned firms are overutilized, while MWBEs are underutilized. With P/Os, WBEs are significantly overutilized, while MBEs are significantly underutilized. White male-owned firms are also significantly underutilized using this measure of P/Os.

Architectural And Engineering and Professional Services

With contract awards, MBE firms in A&E are significantly overutilized. With Payments, the reverse is true with all groups being significantly underutilized while Hispanic MBEs  are overutilized, no other MBE groups are utilized, causing total MBEs to appear underutilized.

In the case of professional services, contracts award data and bidder availability indicates significant overutilization of WBEs and significant underutilization of white male-owned firms. ^[6] There is no utilization of MBE firms in any fiscal year, according to contract awards data. In the case of bidder availability and payments on purchase orders, the result indicates significant overutilization of white male-owned firms and significant under utilization of MWBE and/or each group within the MWBE category.

 Chapter VIII             Anecdotal Comments from the Marketplace

One-on-one interviews with white male-, women-, and minority-owned firms indicate divergent views and concerns.  Among MWBEs, there exists a perceived need for MWBE programs.  Many MWBEs believe that the programs are a good opportunity to be recognized in the marketplace.  However, MWBEs desired more information about legal issues, insurance and topics related to their businesses which would assist them in improving their business operations.  On the other hand, many white male-owned businesses found the programs to be a waste of time, effort and money.  Other issues emerging from the anecdotal analysis were difficulty experienced by MWBEs in securing bonding and the burdensome nature of the MWBE certification process.

Chapter IX             Consideration of Race-Neutral Alternatives

For the most part, Management, Technical, and Financial service providers are available to support the development of small businesses in the Tucson MSA.  These programs may not have a special focus on minority- and women-owned firms, but MWBEs are not precluded from taking advantage of their services.  The Minority Supplier Development Council (MSDC), the Minority Business Development Center (MBDC), and the Women's Business Center (WBC) are available to address concerns and issues relating specifically to MWBEs.

Training in business management techniques, accounting, business plans, financial packaging, and other day-to-day administrative tasks are available to MWBEs in the Tucson MSA through organizations catering to the larger small business community.

Like in many jurisdictions, difficulty in obtaining loans and the hurdle imposed by bonding requirements are problems generally encountered by MWBEs in the Tucson MSA. 

Chapter X             Analysis of Private Sector Disparities

The Private Sector analysis consists of analysis of Census Self-Employment and Apprenticeship data, a DJMA survey and a Pima County Building Permits analysis.  The findings are outlined below.

Census data indicate that, except Hispanics, other minority groups are not generally represented in positions in construction in proportion to their share in the labor force.

Survey results indicate, on average, white male-owned firms won over 64 percent more in City of Tucson work than minority firms, while there was little difference in their success rates in the private sector.  Further, the survey data collected in Tucson are consistent with national findings of discrimination against minorities in business lending and bonding.  Minorities had substantially higher denial rates that white male-owned for bonds and loans.

For FY 2000, firms owned by white males received almost 83 percent of building permits issued by Pima County, and almost 100 percent of the specialty permits.

RECOMMENDATIONS

In light of the above findings, DJMA is providing the following recommendations to Pima County.   The recommendations contain both race/gender-neutral and race/gender-conscious elements.  The recommendations are grouped under the following categories:

1.                  Creation of a Business Opportunity Council

2.                  Goal-setting Recommendations

3.                  Changes in Procurement Procedures and Practices

4.                  Re-prioritizing the MWBE Program

5.                  Nondiscrimination Policy

6.                  Business Development Assistance Initiatives

These recommendations consist of a listing of pertinent options, from which the County may select, in narrow tailoring its efforts to the findings of this report.  The County can adopt those recommendations that are considered most appropriate. 

Upon selection of recommendations that Pima County desires to implement, a tailored and customized program design then may be developed. 

1.      CREATION OF A BUSINESS OPPORTUNITY COUNCIL

Small-, minority- and women-owned business development initiatives tend to be most effective when the entire community is involved in the creation and implementation of the program elements.  As such, DJMA recommends that the County create a Business Opportunity Council (BOC), made up of the following representation:

·        Pima County Board of Supervisors  Members;

·        The County's Senior Management;

·        Chamber of Commerce;

·        Ethnic Chambers of Commerce;

·        Contractor Associations-white male and MWBE;

·        Technical Assistance Service Providers; and,

·        Others entities deemed appropriate by County leaders.

The Board of Supervisors may appoint the BOC.  This group should review the recommendations that follow and determine the course of action most appropriate for the County. ^[7]   The BOC would then meet on a regular basis to determine, contribute to and report to the Board of Supervisors on the County's success in meeting the recommended courses of action.

2.         GOAL-SETTING PROGRAM RECOMMENDATIONS

The actual setting of MWBE goals is a policy decision that requires action by the Board of Supervisors.  The Board of Supervisors can establish overall policy goals that then may be translated the Procurement Department and the MWBE Division ^[8] into annual targets at the contracting level.   The Board can also rely on project-by-project goals.  The County currently employs this practice.  This type of goal-setting would probably be considered the most flexible form of goal setting available to the County.  Thus, this practice should be continued.  The Procurement Department and MWBE Division ^[9] can then develop an action plan that specifies procedure, program and goal improvements that will be made and the timeline allocated for those tasks.

It is important to note that the establishment of goals does not equate to race/gender-conscious activity.  Instead, the means utilized to achieve the established goals determines whether the County is engaging in race/gender-conscious or race/gender-neutral procurement activity.  The goal simply establishes a target level of MWBE participation desired by the County.

As stated above, DJMA recommends that the County continue to utilize goals or targets in all procurement categories.  The existence of established goals is an effective mechanism for establishing objectives for the County and in achieving the desired outcome, when effectively implemented.  In certain categories and for certain groups, race/gender-conscious means are supportable activities toward the achievement of established goals.  Those include:

As significant disparity is eliminated in the above categories, the utilization of race/gender-neutral means in attaining the established goals should be increased.  However, in all instances where race/gender-neutral means are utilized, if significant disparity re-emerges, then race/gender-conscious techniques can be utilized on a non-permanent basis to correct identified disparities.

Race/gender-neutral means should be utilized primarily for the following:

Pima County also utilizes a two and one-half percent (2 ½%) bid preference to MWBEs who bid on goods and supplies.  However, based on interviews with buyers and staff with procurement authority, this bid preference, has little to no effect on MWBEs successfully winning contracts for goods and supplies.  Therefore, the County may wish to consider extended its goal-based program to goods and services as well.

To assist the County in its effort to establish objective targets for MWBE participation, DJMA provides the County with three types of goal-setting mechanisms for its consideration.  These mechanisms are not mutually exclusive and can be utilized together.  DJMA recommends that the County utilize the ATM formula to establish its goals and targets, as it can easily take into consideration the other two goal-setting techniques.

 (1)            Algorithm Target (ATM) Methodology^{SM [10]}

The ATM^SM formula, developed exclusively by DJMA, allows entities to develop goals based on both market conditions (availability) and actual levels of participation by the County (utilization).  The ATM^SM formula also allows the County to forecast the necessary MWBE participation levels to achieve the desired outcome, correcting for stated disparity, by an established date.  This methodology has been designed to assist the County to determine its goals through a realistic and statistically valid model. ^[11]

(2)            Benchmarking

A MWBE benchmark is simply a percentage level of procurement tied to some percentage of MWBE availability.  A properly crafted benchmarking program exhausts race/gender-neutral alternatives in the first instance to achieve the benchmarks and employ race/gender-conscious goals, if at all, in a limited, moderate and occasional manner.  A benchmark is not a quota, but serves as a function in the annual tracking of a government's performance.  The benchmark is presented as a range of percentage goals by procurement category by race/gender.  These ranges would be applied, at the contract level, relative to an overall dollar goal for the governmental entity in a particular procurement category.

Table E.22

Proposed MWBE Benchmark Ranges based on Availability

Pima County

Source: DJMA

(3)        Point System

This type of participation measure is not predicated upon actual goals, but instead provides for a maximum number of points that can be obtained for the participation of MWBEs by a contractor in a proposal.  The point system functions best in RFP and design/build type contractor selection processes.  The primary benefit of the point system is that MWBE participation becomes a factor of bidder responsibility (such as relevant experience and technical qualifications) in the selection process, as opposed to a measure of bid responsiveness, thereby shifting the focus away from MWBE participation as the reason for not awarding a bid to a particular contractor.  In other words, the point system utilizes MWBE status as a factor in selection, as opposed to the factor in selection.

The County should undertake an informal review of its targets, goals or benchmarks every three months to assess MWBE participation in County purchasing.  In the event some target, goal or benchmark is not achieved, the County may rely upon a race/gender-conscious program on an occasional basis for certain contracts.

(4) Project-by-Project Goals

While the County may utilize all three or a combination of the goal setting methods for a given period, it is important to note that embedded within this overall goal should exist a flexible project-by-project goal mechanism. The administrators of any particular goal must carefully monitor the relationship between the nature of work for a given project and the availability of MWBEs. This implies that MWBE Division and Procurement Department must examine each project for its 'work content' and determine a set of skills needed for completion, not merely use the standard capacity measures, such as years of experience or bonding.

Race-Neutral Means to Achieve Goals/Targets

The County should first exhaust all race/gender-neutral means to achieve any established target, goal or benchmark. Race/gender-neutral means include (1) procurement adjustments, (2) prohibition of discrimination in procurement, and (3) matchmaking.  These elements are discussed in detail later in this chapter.

Race/Gender-Conscious Tools

Race/gender-conscious contract goals should be subject to a variety of limitations:

·        Race/gender-conscious goals, where allowable at the County, should not be applied to every contract across all procurement types.

·        Race/gender-conscious goals should generally be "good faith efforts" subject to waivers.

·        Race/gender-conscious goals should be reviewed by the MWBE Division  and Procurement Department to ensure that such goals do not disproportionately fall on one class of white male contractors or subcontractors.  For example, awards of all painting subcontracts to minority firms would impose an undue burden on white male painting subcontractors.

·        Race/gender-conscious goals (in procurement) for subcontracting should apply to both white male and MWBE prime contractors.

·        Firms eligible to benefit from race/gender-conscious goals at the County should be small and subject to graduation provisions.

·        The County's race/gender-conscious elements should be subject to annual review and sunset provisions.

3.      CHANGES IN PROCUREMENT PROCEDURES AND PRACTICES

These measures are designed to address the underlying systemic factors that contributed to the disparity in contracting.  DJMA is providing the County with procurement and MWBE recommendations that will allow the County the ability to determining specifically how it will adjust its procurement system.  The following recommendations address procurement policies, procedures and practices that can be adjusted in order to allow the County to effectively include MWBEs in its contracting opportunities in a race/gender-neutral environment.

A.            Procurement Adjustments

The County can ensure that it is not discriminating against MWBEs nor can it measure the effectiveness of any programmatic initiatives designed to address prior discrimination or disparity without a fully operational and effective procurement system.

An executive management team committed to excellence - combined with a transparent and accountable operational system - will significantly reduce opportunities for inefficiencies and systemic discrimination.  In order for Pima County to be consistent with the above recommendations, DJMA recommends the following procurement adjustments:

·        Regular reports of contracting activity, including MWBE participation in County contracts, can be useful in identifying contracting practices that favor particular contractors and both success and shortcomings in MWBE participation in particular areas and types of County contracting.   While the County provides quarterly reports, these can be enhanced by the following:

·        Forecasts of Opportunities

·        Reports on Outreach by Departments

·        Reports on attendance at conferences and seminars

·        Lists of firms who received management and technical assistance, which led to contract opportunities with the County

·        Business development strategies employed

·        Administrative procedures for contract administration should be developed, adopted and promulgated throughout County departments.  Responsibility for monitoring compliance with contractors' MWBE commitments should be included in such procedures so that the monitoring responsibility is not limited to only the MWBE department.

·        Support of the County's MWBE program objectives should be encouraged through the annual performance evaluation process for Procurement and MWBE staff.  Planned training, with Procurement staffs jointly, should proceed as one means through which both information about and responsibility for the County's MWBE program can be shared and learned.

·        The MWBE Division should be represented on all panels selecting professional service providers.  A method, either race/gender-conscious or race/gender-neutral, should be adopted to encourage greater MWBE participation among the professional service categories.

·        Many of the "disconnects" that were evidenced in interviews of Procurement personnel can be remedied through training.  MWBE program requirements should be shared, as should purchasing procedures.  Such training will enhance the achievement of the County's MWBE participation objectives by creating responsibility for the program among all employees involved in buying.  Innovative techniques that facilitate MWBE participation, such as matchmaking (discussed later), should be planned and jointly executed by the Procurement Department and the MWBE Division.

B.            Integration of MWBE Objectives into the Procurement Process

The key to the effective operation of any race/gender-conscious or race/gender-neutral programmatic initiatives is their integration into the procurement process, such that officials with buying authority can be held fully accountable for the results. There are several adjustments that the County can make to ensure that employees with buying authority are held fully accountable for increasing the level of business that they do with MWBEs:

1)      The Board of Supervisors should ensure that all vendors appreciate that the County has an unwavering commitment to the utilization of MWBEs, through the establishment of clear mission, goals and objectives, the communication of such throughout the organization and the community and appropriate oversight of their implementation;

2)      The County should establish MWBE spending goals for employees with buying authority, based on the commodities for which they are responsible.  These goals would be coordinated with the overall organizational MWBE goals, targets or benchmarks.  It is important to note that race/gender-conscious programs act as a surrogate to holding employees with buying authority accountable for meeting established targets through sound procurement practices and developing consequences when these targets are not met; ^[12]   To be successful, this process will require full coordination and cooperation between divisions of Procurement Departments in the establishment of project goals;

3)      The County should track procurement activity by employees with buying authority, level of business done with MWBEs, number of awards to individual vendors (by procurement unit and/or employees with buying authority), and dollar value of awards to individual vendors (by procurement unit and/or employees with buying authority).  A report on utilization of MWBEs should be provided to department heads on a quarterly basis in order to allow them to assess the effectiveness of their efforts.

4)      The County should address its procurement process in its procurement policies and procedures to ensure that all personnel with buying authority understand the interactions and expectations of the Procurement Department, the User Departments and the MWBE Division.

C.            Database Management

Database management is critical to tracking the performance of the procurement function and the participation of MWBEs with the County. Accurate MWBE participation reports are fundamental in determining actual MWBE participation, in assessing the effectiveness of vendor outreach, and in determining program areas in need of improvement. To facilitate tracking of pre- and post- award procurement activity, the procurement database management system should interface with Procurement, Finance, Accounting,  Facilities, user departments with delegated authority, and any central information system or department.

In order for the County to achieve the objectives outlined above, the following areas within the current database systems must be addressed:

Enhancements to Database

·        The MWBE reporting should be viewed as an integral function of Procurement;

·        Efforts should be made to create electronic versions of all relevant data, such that all departments are adding to and pulling from the same database, as opposed to different electronic and hard copy databases.  These types of data include:

·        Budget and forecasting data

·        Bidder and Sub bidder data

·        Contract award data, including at subcontractor level where applicable

·        Payment data to subcontractors

·        Contract Management/Contract Close-out/MWBE Contract Compliance Data

Appropriate access codes should be provided to ensure integrity of data compilation and reporting.  Further, a common link, such as vendor number, should exist among all databases.  Procurement or commodity codes and vendor numbers should be consistent among all databases. 

Process for Updating Database

Electronic Database

·        To assure reliable calculations of relevant market and availability, the vendor master file process should be enhanced in the following ways:

·        Regarding address information, develop a process for 1) reducing human input errors and 2) addressing inconsistencies in address information;

·        The automated system should check automatically for missing data, as data is input;

·        For address information, create drop down menus of all cities and states and zips, so as to avoid typing errors and in consistencies across all databases;

·        Create a dropdown menu for vendor names, based on a vendor master file;

·        Develop a data dictionary that describes all data fields; if data fields are unknown, identify and input immediately;

·        Remove or define terms or need for decimals in the payments file;

·        Eliminate duplicate vendor names and vendor numbers;

·        Ensure that procedure for purge of inactive vendors following reasonable notice to inactive vendors is applied consistently;

·        Further, vendor payment data should include in readily accessible formats the following information:

·        Procurement type, as opposed to Business ID and work type

·        MWBE Status

Hard Copy Construction Contracts Data

·        The County should capture, consistently, race/ethnicity and address information both bidder and contract award levels;

·        The Procurement Department and MWBE Division should develop a process for tracking actual payments to subcontractors, such that reported subcontractors and their goals, awarded amounts, and actual utilization can be confirmed periodically (e.g. quarterly) and before project close-out;  This would facilitate comparisons as to whether subcontractor goals are achieved and which subcontractors are utilized on the contract or project;

·        The County should improve its data capture of MWBE and white male subcontracting information and data elements for utilization (contract amounts and final payment amounts) and availability (vendor name, vendor number, contract number, race/ethnicity, type of work performed, city, state, zip code, and MWBE status).

D.        Project Sizing

Smaller contracts are more accessible to small contractors and, thus, are more accessible to MWBE contractors.  As such, the County should pursue efforts to evaluate projects to determine if they can be broken into units more readily managed by small companies.  We do note, however, that there can be a fundamental trade-off in contract sizing programs between efforts to increase MWBE prime contracting opportunities and maintaining MWBE subcontracting participation levels.

4.      RE-PRIORITIZING THE MWBE PROGRAM

Whether the County employs race/gender-conscious or race/gender-neutral means to achieving MWBE participation, DJMA suggests that the MWBE Division consider refocusing its priorities in the following areas:

A.                 Refocusing MWBE Program Operations: Matchmaking and Monitoring

Matchmaking is the foundation of successful race/gender-neutral MWBE programs.  Fundamental to matchmaking is advance notice of the universe of contracting opportunities coming up.  The MWBE Division and Procurement Department staff then works with MWBEs, white male prime contractors (even white male first tier subcontractors), and County buyers and others involved in the procurement process to facilitate involvement of MWBEs on County projects at the prime and/or subcontractor level.  To be in a position to facilitate these transactions, the Procurement staff must develop different sets of skills.  Further, the role of matchmaking will need to take on some level of significance not only in the MWBE Division and Procurement Department, but also throughout the County. 

B.     Outreach and Bid Notifications

The traditional or old definition of outreach is to conduct seminars or workshops, and sponsor or set up booths in trade shows and trade conventions.  Also, many governmental entities reach out to the minority and women business community through advertisements in the ethnic media. These practices often are not enough to help MWBEs overcome barriers to contracting opportunities within many local municipalities. The new definition of outreach is encompassed in "matchmaking" described above.

C.        Sunset Plan

The Procurement Department should design and oversee a Sunset Plan that facilitates maintaining and increasing MWBE participation levels in a race/gender-neutral environment.  The Sunset Plan should contain program elements that must be achieved to create a race/gender-neutral environment, as well as evaluation mechanisms to determine whether race/gender-conscious programs should continue to be relied upon in certain areas.  Elements of the Sunset Plan should include:

·        Evaluation mechanisms for measuring senior management commitment to MWBE participation in the County's contracting opportunities;

·        Evaluation mechanisms for measuring achievement of established targets, goals or benchmarking by employees with buying authority;

·        A plan of action for ensuring that MWBE participation objectives have been integrated into overall procurement operations;

·        A plan for reviewing and measuring the viability of the opportunities and contracts available to MWBEs;

·        A database for measuring availability and utilization of MWBEs, including an evaluation or measurement process to be conducted each quarter;

·        Development of the County's outreach program to address the needs of MWBEs in a race/gender-neutral environment;

·        A plan of action for ensuring that certain types of procurements are not concentrated among a few vendors or contractors (this may require addressing employees' procurement habits, adjusting procurement methods, or redesigning the entire process to ensure that the County promotes competitive contracting, as opposed to concentrated contracting);

·        A plan for addressing private sector discrimination;

·        Adjustment of the County's certification process for MWBEs to an operational viability analysis for all vendors,

·        Criteria for evaluating the success of inclusion of MWBEs in the County's contract opportunities in a race/gender-neutral environment, in order to determine whether race/gender-conscious measures need to be utilized.

5.            NONDISCRIMINATION POLICY

DJMA recommends that the County develop a strong Nondiscrimination Policy.  Procedures should be developed which impose penalties on County employees and prime contractors for practices that involve disparate treatment and disparate impact on women and minority contractors.  It is noteworthy that strong nondiscrimination programs engender significant support from proponents and opponents of race/gender-conscious programs.  In fact, the Southeastern Legal Foundation, which has initiated litigation against several public sector MWBE programs, proposed a strong nondiscrimination plan as part of suggested race-neutral alternatives.  The key to the success of this mechanism, however, is "implementation."  The following represents the essential components of an effective nondiscrimination plan:

·                    Monitoring and evaluation techniques should be established to ensure that employees with buying authority, in particular, are achieving diversity in procurement, and utilizing sound business and procurement techniques.

·                    An adjudictory body should be developed to address complaints.  In establishing an adjudicatory body, there would be two components, an investigative arm and a hearing arm. 

·                    The County should develop a certification of nondiscrimination to be completed by all eligible bidders. ^[13] This will ensure that the County is not involved in any discriminatory practices in the private sector. 

·                    In support of the certification process, a tracking system should be developed which allows the County to measure overall participation levels in federal, County, local and private sectors, by vendors doing business or attempting to do business with the County.

·                    The County should develop penalties for discrimination, i.e., barring a contractor found to have discriminated against MWBEs from bidding with the County for an established period of time.

6.            BUSINESS DEVELOPMENT ASSISTANCE INITIATIVES

Business development initiatives do not require detailed factual inquiry to withstand judicial review because they are judged to be race/gender-neutral activities.   The County may wish to explore several forms of assistance to area businesses, ranging from business formation to loan guarantees. Recommendations are made here, however, about a few forms of help that have a direct bearing on businesses wishing to execute contract work for Pima County.

Bonding and Insurance

Several approaches may be taken to alleviating the problems that bonding and insurance requirements can have on small and MWBE firms. At least four approaches may be taken to removing the barrier that bonding requirements sometimes can represent.  These include waiving bonding requirements, removing customary bonding stipulations at the subcontract level, reducing bonding, and phasing bonding.

In addition to the above, several governmental bodies across the country have worked with local banking and other financial institutions to create bonding programs underwritten by the local government.  A key to the success of such programs is establishing a contractor performance monitoring function to provide an early warning to any problems being encountered by covered contractors.  The monitors are empowered to mobilize necessary assistance to ensure completion of the work and to minimize financial and other risk to the underwriter.

Wrap-up Insurance

This represents an approach to affording all contractors the necessary insurance to perform public work while guaranteeing the owner that needed insurance coverage is in place in all critical areas of contracting.  Under a wrap-up insurance plan, the owner establishes a subsidiary organization, usually made up of a consortium of insurance brokers.  Insurers are normally eager to compete for this business, and will offer competitive rates to secure it.  The arrangement also represents an excellent opportunity to involve MWBEs in this business. 

Once in place, the owner offers blanket insurance coverage to all its contractors through the wrap-up program.  Bidders, and subcontractors at all levels, know that this is taken care of in advance.  They do not have to worry about securing insurance or paying for it.  The owner benefits through lower bid prices and by buying lower cost coverage through the consortium because of the large group insured.  In addition, the administrative arm of the consortium can be required to manage the insurance requirements (e.g., ensuring that all policies are executed before commencing work) as well as the owner's construction safety program.  The latter activity is a natural extension of the consortium's interest since safety awareness and good practice lowers the instance and cost of claims.

Other Business Development Assistance

DJMA recommends that the County continue to refer MWBEs to appropriate organizations that provide technical assistance in bonding, financial and management assistance.  Through its vendor registration and certification, matchmaking and strong relationships with management and technical assistance providers, the County should always be apprised and armed with sufficient information on those MWBEs ready, willing and able to perform on specific contract opportunities.

SUMMARY

D.J. Miller & Associates, Inc. found that, while Pima County experienced notable success in including minority and women businesses in its contract opportunities, statistically significant disparity still remains for racial and gender groups in relation to particular contracting categories.  The disparity suggests that MWBEs continue to have difficulties obtaining significant contracts with the Pima County.

In submitting specific findings within the disparity study for Pima County, DJMA formulated recommendations that allow the County to rely upon race/gender-conscious means when necessary to address entrenched disparity, while also addressing MWBE participation through race/gender-neutral efforts.  Our economic and statistical utilization analyses may serve as part of the policy and procedure-making decisions needed to be made to ensure continued MWBE participation in the County's procurement.