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CT’s Diversity Contracting Program Leaves Minorities Behind

CT’s Diversity Contracting Program Leaves Minorities Behind

Hartford Business Journal, September 22, 2020

By Matt Pilon

State agencies spend more than $100 million a year doing business with minority-owned small businesses in Connecticut, well exceeding targets enshrined in state law, but business people of color say they are getting short-changed.

As Black Lives Matter protests around the country this year have drawn attention to police brutality against minorities and other institutional racism, a decades-long fight over a Connecticut program designed to alleviate historic disparities experienced by minority-owned companies trying to win state contracts has churned on with no apparent resolution in sight.

The situation with the state’s Supplier Diversity Program has led to frustration and feelings of hopelessness among some minority entrepreneurs who have been pushing reforms with little success.

Some say the legislature’s failure to address the matter adds yet another societal barrier to those already faced by many minorities in Connecticut and elsewhere, including higher rates of poverty, unemployment and business failure.

The coronavirus pandemic has painted an increasingly dire picture, particularly for entrepreneurs of color. Across the country, 41% of Black-owned businesses and 32% of Latino-owned companies closed their doors temporarily or permanently in April, compared with one-quarter of women-owned companies and 22% of all businesses, according to the National Bureau of Economic Research.

Connecticut’s supplier diversity program, commonly referred to as a contract set-aside program, directs most state agencies to make a good faith effort to spend 25% of their annual contract dollars with Connecticut small businesses (defined as firms with $15 million in annual revenue or less).

Of that slice of the pie, 25% is supposed to go to small companies owned by specific racial and ethnic minorities, such as Black, Hispanic and Native American entrepreneurs, as well as by women of any race, including those who are white.

That means out of all the money Connecticut agencies spend on contracts, for anything from architectural work to masonry and janitorial services, 6.25% of the total pie is supposed to go to so-called “minority business enterprises.”

“You’re talking 6.25% out of 100%,” said Bernard Thomas, chairman of the Connecticut Minority Construction Council and owner of Hartford-based construction consulting firm BT Solutions. “That’s a huge problem right there.”

Minority business owners have long argued that the target is too small to accurately reflect the challenges they face in bidding on public work and winning favor with larger contractors who can subcontract them for taxpayer-funded projects. They also say that people of color actually tend to receive an even smaller share of contracts because the program — unlike similar ones in other states, like Massachusetts — lumps together minority-owned companies with women-owned firms that may not be led by an ethnic minority.

Fred McKinney, a Quinnipiac business professor as well as the owner of a consulting business, said 6.25% of state agency contracts is not helping the economic development of racial and ethnic communities in Connecticut.

“The state’s procurement policies are not currently designed to promote the economic development of Black and brown communities in the state,” McKinney said. “That’s a fact.”

On the whole, Connecticut agencies routinely spend much more than 6.25% of their annual contract expenditures on certified minority business enterprises.

All combined, agencies spent nearly $901 million on such contracts between 2012 and 2019, compared to their set-aside target of just $257 million for that period, according to data from the Department of Administrative Services (DAS) and the Commission on Human Rights and Opportunities (CHRO), which oversee certification of minority enterprises and set-aside program performance, respectively.

But minority business owners say the numbers mask the truth.

Besides Thomas and McKinney, a number of other advocates — including Minority Construction Council Executive Director Jennifer-Little Greer, Sen. Douglas McCrory (D-Hartford), and Peter Hurst, CEO of the Bridgeport-based Greater New England Minority Supplier Development Council — are convinced that women-owned businesses are getting a disproportionate share of the diversity program’s already modest set-aside, leaving crumbs for firms owned by racial and ethnic minority owners.

“I can assure you that if you broke it out, you would see the numbers are skewed toward women,” said Hurst, of the supplier council. “It would expose an unfortunate reality.” 

More detailed report back to top

Complicating matters is the fact that the state has not publicly reported a more detailed breakout of the contract allocations for more than a decade, making it difficult to say with certainty whether some groups are being treated unfairly compared to others, and if so, to what extent.

That’s led to calls for a new disparity study, which would help determine an updated set-aside target and prove the extent to which there is discrimination against minority enterprises in the contractng process.

However, lawmakers have failed to fund a study in recent years. It could cost $2 million and require a complex analysis of how many minority-owned firms have capacity to handle various types of state contracts in a geographic market, and the extent to which they are getting an unequal portion of work.

The state’s last formal disparity study was conducted in 1992 and determined the 6.25% minority set-aside target that remains in place today, despite untold economic shifts since then.

“They just need to put the money behind it,” said the Minority Construction Council’s Little-Greer of a disparity study. “Currently, because everything is being lumped together, the numbers are being skewed.”

There is some evidence from CHRO — which has advocated consistently for disparity-study funding — that women-owned companies were faring better than minority-owned firms back in the mid-2000s.

A 2009 CHRO report revealed that in 2008, 38% of all certified minority enterprises were owned by minorities, while 60% were women-owned firms. However, minority-owned firms received just 15% of the contract dollars allocated that year, while women received 82%.

The Hartford Business Journal requested a similar breakout from DAS for the past decade, but the agency said it couldn’t provide it before press time because the data was not in easily usable formats. CHRO, meanwhile, ignored interview requests for this story.

McCrory said he believes the data will show that not much has changed about the diversity program since 2008.

“94% of the work can go to white men in this state and the other 6% can go to their wives and we would still be in compliance with the policies of the state of Connecticut,” said McCrory, who is Black. “We’ve been at this the last 30 years and we’ve changed nothing.”

Getting a disparity study off the ground has proven surprisingly difficult.

Lawmakers in 2011 farmed out the task to the Connecticut Academy of Science and Engineering (CASE), but after approximately four years of work, the nonprofit group, which was paid $755,000 for the first three phases of its analysis, was unable to get additional funding for a final crucial phase. CHRO officials and others criticized CASE for being unqualified to conduct such a complex study on a topic with which it was unfamiliar.

Terri Clark, CASE’s executive director, told HBJ that she stands by the group’s first three phases of analysis, and noted that CASE had hired an advisor who is an attorney and expert in disparity studies.

CASE’s initial reports found evidence of disparities by race, ethnicity and gender for factors such as business formation, earnings, credit access, homeownership and home lending, but the final phase of the study, which would have analyzed the presence, availability and utilization of minority-owned firms in Connecticut for state contracts — crucial pieces of a disparity study — was never funded.

Over the past few legislative sessions, lawmakers have filed bills proposing that CHRO or other entities conduct the disparity study instead of CASE, but funding has not come through.

The stakes of a new study would be high. It could find that some minority groups are more disadvantaged than others and therefore deserve a higher percentage of contract revenue.

It’s also possible that it finds there is less disparity than expected, which could lead to lower set-asides for minority groups.

The need for the study to make changes to the set-aside program stems from a 1989 U.S. Supreme Court ruling that Richmond, Virginia’s diversity program was unconstitutional because it was not based on actual evidence that minority-owned firms faced disparities. The simple fact that the minority population in the Richmond area was greater than the amount of contracts won by minority-owned firms was not sufficient evidence, judges ruled.

While there’s been legislation in recent years seeking to make piecemeal changes to Connecticut’s diversity program, lawmakers and officials have been wary to make them absent an updated study.

“Any changes [to the contract set-aside program] made without the backing of a disparity study could put the whole program at risk if it were challenged in court,” DAS spokeswoman Lora Rae Anderson said. “We want to make sure that if the legislature votes for changes, that they have the tools to do it right, and in a way that will make long lasting change.”