Barriers Facing Minority- and Women-Owned Businesses in Pennsylvania
Conclusions and Recommendations
In the preceding chapters, the Advisory Committee described low levels of participation by minority- and women-owned business enterprises (M/WBEs) in state and city of Philadelphia contracts (chapter 1), as well as efforts by state and Philadelphia agencies to assist M/WBEs and eliminate discrimination in the contracting process (chapter 2). Based on information gathered at the forum and subsequent research, the report identifies the types of barriers M/WBEs encounter (chapter 3) while highlighting exemplary cases that achieved greater inclusion of M/WBEs (chapter 4). The report also provides additional information on large-scale projects in Philadelphia and Pittsburgh that have drawn attention to the concerns of M/WBEs (chapter 5). In this chapter, the Committee summarizes the report’s major conclusions regarding these topics and provides recommendations for state and municipal government agencies, business, and community leaders.
M/WBE Participation Rates in Public Contracting and Interpreting Contract Data
In Pennsylvania, M/WBEs participate only in a small share of the billions of dollars of goods and services purchased by state agencies. Their participation is minimal and M/WBEs continue to lag behind majority-owned firms that receive public contracts. The precise level of contracting to M/WBEs is difficult to determine due to non-uniform reporting procedures and the unavailability of contracting data from nonminority firms. State agencies do not report contracting figures to the Bureau of Contract Administration and Business Development (BCABD) in a way that permits meaningful interpretation of the number of contracts in a given period to M/WBEs and nonminority-owned businesses. Without this information, it is impossible to see how M/WBEs fare in receiving contracts in comparison to similar nonminority firms. Total payments to M/WBEs by state agencies reporting to BCABD did not exceed $30 million for the five-year period between 1994 and 1998. This is miniscule when compared with an annual estimated expenditure of approximately $4.5 billion in goods and services (exact figure was not available). Philadelphia contracts to M/WBEs for supplies, services, equipment, and public works have remained under 17 percent of the total bid dollars going to all businesses between 1992 and 1997. However, Philadelphia’s contracting level to M/WBEs is much higher than the state’s.
To accurately compare M/WBE and nonminority firm participation, state and municipal officials must develop and implement accurate contract reporting mechanisms that continually track commitments and payments to M/WBEs. Further, BCABD must collect more detailed information to determine the number of nonminority-owed firms receiving contracts in comparison to M/WBEs and whether this is proportionate given their relative share in each industry. BCABD should take a leadership role in developing a computerized system so that individual agencies report to BCABD information such as M/WBE contracting data and payment information for all contractors and subcontractors in each project.
BCABD and other state offices within the governor’s office should jointly report annually to the governor and General Assembly on contracting to M/WBEs, enterprise zone firms, and nonminority firms by industry. The report should detail the agency’s staffing needs, investigations of discrimination in the contracting process, barriers M/WBEs face, and efforts to improve M/WBE participation. BCABD should periodically survey M/WBE owners to help pinpoint additional problem areas not traditionally reported, such as limited funding sources, and the percentage of a firm’s total business that relies on government contracts. BCABD should (1) compile information on whether nonminority businesses have a formal policy regarding M/WBE subcontractors that includes targeting bid solicitations and using goals for M/WBE utilization, (2) track M/WBE subcontracts, and (3) encourage and support M/WBE participation by having purchasing managers actively recruit M/WBE involvement and take part in various M/WBE trade fairs.
Understaffing of State Agencies Assisting M/WBEs and Efficacy of State Programs
Staffing is insufficient at BCABD and various governor’s advisory commissions tasked with assisting M/WBEs, making it difficult for state officials to track M/WBE development or provide meaningful assistance. BCABD’s Investigation Unit, for example, is composed of a supervisor with no staff support, even though it was intended that the unit would have two offices across the state. This staffing shortage may make it difficult for the unit to review firms that claim to be M/WBEs—leaving many firms, including front firms unchecked by state officials absent a complaint. For example, front companies in Pittsburgh (chapter 5) take business away from M/WBEs and erode trust in municipal contracting.
Similarly, BCABD’s Training and Development Unit, staffed with five people (four business enterprise analysts and one support staff person), operates out of Harrisburg and has only one regional office in Pittsburgh. Because of understaffing, the unit is unable to follow-up with business owners it has trained to assess other training needs or get feedback on the state’s business climate.
Other statewide programs and offices identified in chapter 2 also have limited staff. Although their tasks are well defined on paper, the Advisory Committee believes it is difficult to get a clear sense of the actual impact of their efforts to help M/WBEs from available material. In addition, these offices have overlapping functions and responsibilities, with little coordination between offices to maximize the state’s efforts.
Understaffing at BCABD and various offices within the Department of Community and Economic Development should be corrected, possibly through increased funding. They should hire additional staff to enable them to accomplish their mandates. With increased staff, BCABD should help state agencies evaluate contracting for M/WBEs, determine the degree of satisfaction with an agency’s service, and suggest needed changes. It should also help M/WBEs reach capital sources and help them link up with prime contractors to secure work. State staff should conduct more workshops and business seminars on financial and technical assistance topics such as starting a small business; keeping schedules, records, and payroll; contracting with state and local government agencies; preparing loan applications and accessing capital sources; and participating in large-scale projects. One suggested workshop model is a three-day bid simulation seminar sponsored by the Tennessee Department of Transportation. Using past bid documents, the department supervises and works with M/WBEs to complete a mock bid proposal and provides feedback on problems and issues that arose in the actual project.
Commitment to M/WBE Development in Philadelphia
To meet the Supreme Court’s Croson guidelines concerning valid race-conscious programs, the city of Philadelphia commissioned a second disparity study with D.J. Miller & Associates that it hoped could be used to justify new M/WBE programs. The study should have been released years ago. It has been over five years since the study was due for completion pursuant to the contract between the city and D.J. Miller, and even the study’s preliminary findings have not been released to the public. To add to the delay, the city has contracted for an independent audit of the D.J. Miller study, the results of which also have not been released to the public. It is unclear what steps policymakers in city government will take once this review is complete and whether the D.J. Miller findings and analysis will fulfill the study’s original purpose of supporting a race-conscious program. It is clear, however, that the longer the study results are withheld from the public, the stronger will be the public suspicion regarding the city’s commitment to assisting M/WBEs.
As part of due diligence of their leadership, city leaders should ensure that long-overdue disparity studies are completed as soon as possible and that their results are released to the public.
Since many cities have been creative in assisting M/WBEs, the city of Philadelphia should look to models from other cities that could be adapted for Philadelphia’s needs. One example is the “incentive program” in Los Angeles, where small businesses (regardless of whether they are minority- or women-owned) are given five points on a bid over a larger contractor. Because it is reported that nonrace-conscious measures, such as assistance to all small business, can increase opportunities for M/WBEs, the mayor and Philadelphia City Council should explore other cities’ exemplary efforts.
Record Keeping by City of Philadelphia Agencies
The city of Philadelphia’s Minority Business Enterprise Council (MBEC) and the Law Department could not locate a copy of the Brimmer report, a pivotal document to the city’s past affirmative action history—raising serious concerns about their record-keeping practices. The Brimmer report should be readily retrievable, given its legal significance, both as a source of data analysis and history of the city’s affirmative action policy.
MBEC and the Law Department should search diligently for the missing Brimmer report. To restore credibility, these agencies should adopt safeguards to ensure that in the future, documents are not misplaced or lost. The city should make a public announcement explaining its inability to locate the report; and if the report is found, the city should make it available to the public.
Barriers to M/WBE Participation and Development
Barriers impede many M/WBEs from successfully participating in public and private business opportunities. Many of the barriers identified at the Committee’s forum occur simultaneously. Some, particularly union interference and late payment by prime contractors, may so significantly impede M/WBEs that they are forced out of business. While some barriers such as negative stereotypes of M/WBEs may take longer to overcome, immediate steps can be taken to lessen the burden these businesses face. Throughout the forum, the Advisory Committee inquired as to what these steps might entail and what action could be taken to alleviate barriers. These ideas, some of which are derived from suggestions offered by panelists and components of successful initiatives described in chapter 4, correspond to specific barriers identified at the forum and are presented below.
M/WBE owners claimed that majority contractors and vendors hold prejudicial views that M/WBEs in general are not fully capable of completing a project. Not only are these views demeaning, but M/WBE owners are also faced with the additional hurdle of having to prove their capability to handle a particular job.
State contracting agencies should undertake a systematic survey of M/WBEs to ascertain the nature of prejudice and then hold trainings/workshops to reduce and eventually prevent its occurrence. They should inquire as to the number of successful contracting experiences by M/WBEs, barriers they may have encountered, and the reasons for any failure to win contracts. In addition to quantitative data analysis and expert opinion, this survey should include anecdotal information from M/WBE owners through in-person interviews, questionnaires, and public hearings.
Public officials as well as civil rights and business leaders must join forces to take a strong position that M/WBEs be included early in all phases of project development and educate prime contractors that M/WBEs are willing and, more importantly, capable of performing contracts. This commitment must come from municipal leaders, who should actively promote M/WBEs’ consideration and inclusion in all contract opportunities. Municipal leaders should encourage labor unions and large contractors to recruit M/WBEs.
Prime contractors should hold training sessions with M/WBE owners to educate them on how to bid for contracts effectively.
Limited Access to Critical Information and Business Networks
M/WBEs do not always have the established business contacts or relationships with key persons or organizations necessary to promote their business. Furthermore, they claim that prime contractors frequently do not provide them with timely information about contracting opportunities. They are left out of the information flow whether inadvertently or by design. When they do get information, it is sometimes so late that they are unable to prepare an adequate proposal.
A centralized resource center should be formed to provide bid information and monitor whether prime contractors are informing M/WBEs of contracting opportunities. The center should also grant mobilization and training funds, and offer workshops with contractors and subcontractors.
Municipal agencies can help M/WBEs build stronger relationships with prime contractors and assist in disseminating information on bid and contracting opportunities. State and local government agencies, such as the various governor’s advisory commissions and small-business coalitions, should sponsor more business roundtable events inviting M/WBE owners, prime contractors, and financial services and chamber of commerce representatives. BCABD, in coordination with the women and minority business advocates, should host more regional/state conferences or awards banquets with M/WBEs to highlight businesses that have demonstrated growth and innovation. An example of this activity is the Minority Business Plan Competition funded by the Pennsylvania Department of Community and Economic Development. Similar events should be held throughout the state so that future M/WBE owners can network with other business owners and entrepreneurs.
Unions should expand programs such as the Stempel program sponsored by the Associated General Contractors of America to other cities. This program in Philadelphia, termed the Mentor-Protégé Program, is designed to build relationships between established firms and newer, smaller businesses and increase the number of minority firms and skilled laborers in the construction industry. Established firms offer advice and assistance during the contracting process to smaller companies. The goal is to help minority firms gain a foothold in selected markets and ultimately help M/WBEs win contracts. Similar efforts could take the form of joint ventures wherein large firms are allied with M/WBEs on a specific project.
Limited Access to Capital and Bonding
M/WBEs claim that limited access to capital and bonding sources is a significant barrier to their development, often citing instances of risking their own credit or personal savings. WBEs claim they are more disadvantaged than their male counterparts when trying to secure adequate funding. All businesses need funding so they can offer a competitive bid for certain jobs, obtain new equipment, and pay their employees. With limited operating funds and small staff, some M/WBEs cannot adequately prepare bids, carry payroll, or purchase equipment as work progresses. Limited access to financing thus creates an overall operating difficulty that can threaten a firm’s survival. Prime contractors may consider this a weakness and avoid choosing that firm as a subcontractor. In addition, to be successful, firms must have sufficient bonding to bid for a contract. Particularly for newly established firms, it is hard to get funding from financial institutions for start-up capital or money to meet bonding requirements.
Municipal leaders and financial services industry representatives should expand their efforts to extend sufficient capital and bonding to M/WBEs on a timely basis. Municipal leaders should explore how existing programs in Pennsylvania such as the PennCap Access Program, the Small Business First Fund, and the Pennsylvania Minority Business Development Authority, which offer low-cost loans to M/WBEs and small businesses within distressed communities, can be enhanced. Small-business-friendly banking institutions should publicize their special services and lending record to small businesses and M/WBEs.
The existing small-business-friendly programs noted above (and private initiatives by financial institutions) have eligibility requirements depending on the type and/or location of the business, number of employees, and business purpose. The various state agencies charged with assisting M/WBEs should provide assistance to M/WBE owners so that they may qualify for special loans from these programs. Agencies should reinforce the need for M/WBEs to maintain records adequately, or in many cases, improve their record keeping. Agencies should offer additional training and informational resources to help M/WBE owners accomplish this.
Unclear Contract Terms
M/WBE owners encounter problems after they have entered into a contract due to unclear or confusing contract provisions. Most small businesses lack sufficient staff or expertise to analyze contract terms before signing the contract. As a result, it is only after they sign the contract that owners find contract terms unclear or contract provisions detrimental to their business.
Prime contractors should clearly explain in plain English key provisions of a contract (preferably in person) to their subcontractors regarding payment provisions, delivery of goods and services, and labor issues.
State and municipal agencies should provide technical training and increased business counseling to prepare M/WBEs for future business dealings with these entities. In addition, agencies should publish and distribute materials that cover commonly used contract provisions and fair business practices to help owners understand the contracting process. These materials should be annotated to highlight significant parts of the contract such as deadlines and conditions. Special services should be offered to language minority M/WBEs to help owners understand contracts, tax forms, and other business documents required by municipal and private entities.
Difficulty Entering the Skilled Trades
Traditionally, trade unions have been a primary source for learning skilled trades. Minorities historically have found great difficulty joining trade unions—depriving them the opportunity to develop needed skills and contributing to the underrepresentation of minorities in trade unions.
Because trade unions are the primary sources for entering the skilled trades, trade schools must try to recruit minority students and provide minority and female applicants greater opportunity to participate in pre-apprenticeship training programs. To enhance their recruitability, trade schools should provide online access for minority and female students.
Since union membership is also crucial, unions must continue their outreach efforts, including participation in local job fairs, school career days, and related community activities. They should disseminate information on job openings and career positions, encouraging young persons as well as M/WBE owners to visit work sites and speak with workers and owners.
Prevailing Wage Laws
Opinions vary as to whether selected industries should be exempt from prevailing wage laws. For some, such laws are necessary to preserve a fair wage level for working-class individuals and to guarantee a skilled work force trained in specific trades and industries. Yet, some M/WBE owners claim that paying prevailing wages for public construction and repair projects is expensive and not cost effective. Therefore, those M/WBEs that cannot pay prevailing wages are effectively prevented from bidding on contracts in which prevailing wages are specified. In some industries, only unionized firms can compete, which means small or non-union M/WBEs are shut out from business opportunities. Because some trades rely on a specialized work force, M/WBEs are at times unable to find non-unionized workers with needed skills, further preventing them from pursuing contracts.
To the extent M/WBE owners claim that prevailing wages are a barrier, a more systematic, in-depth study should be conducted by state or federal agencies, such as the Pennsylvania Department of Labor and Industry and U.S. Department of Labor, to better understand the percentage of M/WBE firms participating in prevailing wage projects and, in particular, how some M/WBEs participate while others cannot. Especially useful information would include the reasons some firms claim they experienced hardship.
Irregularities in Payment for Work Performed
Payments to M/WBEs by the prime contractor and other subcontractors for completed work are sometimes delayed for extended periods of time beyond what is specified in the contract. Delayed payments place M/WBEs in cash flow jeopardy and prevent them from paying their workers. As a consequence, firms must extend their resources or shift capital away from other projects.
State and municipal agencies, such as MBEC, BCABD, and the Allegheny County Minority, Women and Disadvantaged Business Enterprise Department, should (1) monitor payments to M/WBEs as specified in subcontracts to ensure that firms are paid on a timely basis, (2) create a mediation process to help solve payment disputes between prime contractors and M/WBEs, and (3) recommend an alternative payment schedule so that M/WBEs and small firms are paid incrementally throughout the course of a project.
Claims of Interference from Labor Unions and Trade Organizations
At the forum, complaints surfaced that union and trade organizations use various tactics to interfere with valid contracts between prime contractors and M/WBEs. It was alleged that the prime contractor and/or the M/WBE may be subjected to threats of work shutdown, trespassing on the job site, picketing, or vandalism. Shutdowns invariably result in work delay and ensuing disruptions on cash flow, which in turn, affect M/WBE capability on other jobs.
State and municipal agencies, such as MBEC, BCABD, and the Allegheny County Minority, Women and Disadvantaged Business Enterprise Department, should undertake a comprehensive study on whether these alleged practices are employed by labor unions and trade organizations and what effects these alleged practices have on M/WBEs. When appropriate, protective measures should be devised to mitigate any adverse impact on M/WBEs.
Representatives of labor unions, contractors, and M/WBEs should reach agreement so that M/WBEs and smaller businesses are permitted to work on projects even though they are non-unionized. One compromise is to allow non-union M/WBEs to work as long as they recruit from the labor union work force.
Contracting Fraud and Mismanagement of Municipal Projects
M/WBE participation is adversely affected by mismanagement or failure to manage. In Pittsburgh, various forms of contracting fraud were alleged involving large-scale municipal projects. In Philadelphia, concerns surfaced early on that M/WBEs were not getting a fair share of the business opportunities in the Kvaerner shipyard project and others. Although these projects have undoubtedly generated high revenues for areas businesses, M/WBEs may not have received fair consideration during these contracting stages.
For example, in the Pittsburgh stadium projects, some M/WBEs alleged they were asked to serve as front companies by agreeing to take pass-through payments for being named on projects. In Philadelphia, some M/WBEs claimed that although prime contractors listed them in their bid proposals, these M/WBEs were not used in the project once the contract was awarded. They alleged that contractors did not report their non-use of M/WBEs to city officials nor did city officials monitor whether contractors were in fact employing M/WBEs.
Although public officials are aware of the issue and have vowed increased diligence and monitoring, state and city agencies such as BCABD and MBEC should renew their efforts to monitor and verify whether M/WBEs listed in original contract proposals continue to work on the project and receive prompt and adequate payment. As part of their monitoring, agencies should require contractors to regularly demonstrate M/WBE utilization on each project. Agencies should conduct periodic on-site reviews and/or investigations if it is suspected that M/WBEs are not utilized as specified in the contract, they are serving as front companies, or they are not in fact minority- or women-owned. Where federal or state laws are violated, appropriate investigative and enforcement agencies should prosecute violators and pursue remedial solutions.
 The Committee recently
learned that the state plans to implement an “enterprise resource planning
system” to establish an integrated administrative system to support
procurement, personnel, payroll, accounting, and budgeting. When the new
system is complete, statistical reports mentioned above will be available.
Gary N. Lee, director, Bureau of Contract Administration and Business
Development (BCABD), letter to Marc Pentino, Eastern Regional Office, U.S.
Commission on Civil Rights (USCCR), Oct. 11, 2001.
 See Carel Ketchum
and Craig Carter, Center for Advanced Purchasing Studies, Purchasing from
Minority Business Enterprises: Best Practices, Executive Summary, 1995,
accessed at <http://www.capresearch.org/research/focuses/mbe stud.html>.
 Melvin Johnson, BCABD, and
Jack Shannon, University of Pennsylvania, telephone interview with Marc
Pentino, Eastern Regional Office, USCCR, Dec. 4, 2000.
 Usha Hannigan, BCABD,
telephone interview with Marc Pentino, Eastern Regional Office, USCCR, Sept.
 Usha Hannigan, BCABD,
telephone interview with Marc Pentino, Eastern Regional Office, USCCR, Jan.
 Similar findings were
discussed in a performance audit of the Department of General Services
released by the Pennsylvania state auditor general in April 2001.
Pennsylvania Department of the Auditor General, “Audit Finds Weak State
Commitment to Minority- and Women-Owned Businesses,” press release, Apr.
24, 2001, accessed at <http://
 The process of affected
agency review by government agencies resulted in written communications
between the Advisory Committee and Gary N. Lee, director, BCABD, regarding
the accuracy of statements made by BCABD staff. The reader can reconstruct
the nature of this exchange by referring to appendices 5 and 6. Subsequent
to this exchange the Eastern Regional Office received in March 2002 Mr.
Lee’s response dated Dec. 17, 2001. The factual clarifications provided in
this letter have been incorporated, but the letter is not appended in this
 See BBC Research
and Consulting, A Guide to the Proper Consideration of MBE/WBE Programs,
Nondiscrimination Program Development, Issue 5, n.d., accessed at
 The Committee made one
last attempt on June 14, 2002, to acquire update information regarding the
D.J. Miller study, the audit by the University of Pennsylvania consultant,
and planned hearings. As of July 15, 2002, no information was received or
forwarded to the Committee by MBEC.
 See Dion
Nissenbaum, “California Hunts for Affirmative Action Alternatives,” Pittsburgh
Post-Gazette, Dec. 10, 2000.
 A similar recommendation
was made by Philadelphia Councilman Angel Ortiz in his policy report
released in February 2001. See Councilman Angel L. Ortiz, The
Illusion of Inclusion—Affirmative Action in Philadelphia, February
 The state of Colorado and
the Colorado Department of Transportation conducted a disparity study using
these techniques. See MGT of America Inc., State of Colorado and
the Colorado Department of Transportation Disparity Study Final Report,
April 1998, accessed at <http://www.state.
 It should be noted that
at the March 1999 hearings before the U.S. House of Representatives,
Subcommittee on Empowerment of the Committee on Small Business, witnesses
offered suggestions on how to enhance business opportunities for M/WBE
owners and future entrepreneurs. Panelists urged public and corporate
leaders to commit their resources to ensure that M/WBEs remain included in
contracting opportunities and that assistance to these firms continues. Once
this commitment is made, agents for these businesses will become aware that
including M/WBEs is a priority and thus make sure they find minority
contractors for their projects. U.S. House of Representatives, Subcommittee
on Empowerment of the Committee on Small Business, Mar. 23, 1999. See
also Yvonne Simpson, vice president, Small Business Services, Greenville
South Carolina Chamber of Commerce, testimony, Subcommittee on Empowerment
hearing, Mar. 23, 1999, transcript, p. 19.
recommendation was made by Nancy Myers, president, Qualified Women and
Minorities in Construction. See Nancy Myers, testimony before
the Pennsylvania Advisory Committee to the U.S. Commission on Civil Rights,
forum, Philadelphia, PA, Jan. 14, 1999, transcript, p.
 Some examples include
publicizing information about a particular firm, submitting bids to
contractors, and sending/receiving needed information during the contracting
process. Commercially available systems can accomplish these functions, and
the state and municipalities should explore whether their current systems
could be improved.
 The event is implemented
by various federal and local agencies and educational institutions. Winners
receive grants of $20,000 and are selected among five categories. Because of
the success, the Department of Community and Economic Development expanded
this competition to include five southeastern Pennsylvania counties. This
should be replicated in other parts of the state. See Ben Franklin
Technology Partners of Southeastern Pennsylvania, “Ben Franklin Technology
Partners Kicks-Off Round Two of Minority Business Plan Competition,” news
release, Mar. 13, 2001, accessed at <http://www.sep.benfranklin.org/news/010
 M/WBE owners should note
that a list of small-business-friendly banks in Pennsylvania can be obtained
from the U.S. Small Business Administration. See U.S. Small Business
Administration, “Small Business Lending in the United States,” June
1999, accessed at <http://www.sba.gov/stats/ lending>.
 It should be mentioned
that MBEC does serve as an intermediary in disputes between the prime
contractor and M/WBEs.
 In the affected agency review of the Advisory Committee’s report, Michelle Flamer, senior attorney, City of Philadelphia Law Department, provided two clarifications: First, the awarding agency identified in this paragraph is not revealed, but the contract is identified as a housing contract. Contracts for housing rehabilitation are not within MBEC’s purview as they are awarded by Commonwealth agencies such as the Redevelopment Authority or independent quasi-public agencies such as the Philadelphia Housing Development Corporation. Second, MBEC conducts two contract monitoring phases—when bids are opened (MBEC verifies the scope and dollar amount of participation of M/WBEs named on the “Solicitation for Participation and Commitment Form”)—and after award of the contract (MBEC requires submission of invoices and other documents showing achievement of participation). MBEC also serves as an advocate to the M/WBE community and functions as an intermediary in payment disputes between the prime contractor and M/WBEs. Michelle D. Flamer, senior attorney, letter to Marc Pentino, Eastern Regional Office, USCCR, Oct. 9. 2001. Note, the response does not address MBEC monitoring of reimbursements or timely payment.