U.S. Commission on Civil Rights

Barriers Facing Minority- and Women-Owned Businesses in Pennsylvania

Chapter 5

Developments in Minority- and Women-Owned Business Utilization at the State and Local Levels

In addition to exemplary projects, the Advisory Committee also kept abreast of large-scale projects that have drawn considerable media attention: the redevelopment of the naval shipyard in Philadelphia by Kvaerner Group ASA and municipal construction projects in Pittsburgh. As mentioned in the preface, the Committee held a planning meeting with Kvaerner representatives to inquire into allegations that M/WBEs were not receiving a fair share of contracting opportunities. In following the funding and construction of municipal projects in Pittsburgh, the Committee contacted numerous public officials and community organizations to develop an understanding of the controversy in this area. These two projects were lauded as the largest projects in the state and raised hope of great opportunities for M/WBEs. Because of their size and importance, both undertakings are reviewed here for their effectiveness in meeting their M/WBE goals and overall completion of their objectives.

Philadelphia Naval Shipyard

The U.S. Navy's closure of the Philadelphia Naval Shipyard in 1995 ended a 195-year shipbuilding history in Philadelphia as well as careers for approximately 7,000 workers.[1] In 1996, however, Europe's largest shipbuilder, Kvaerner Group ASA, and state and local officials announced the yard's redevelopment, signing a master agreement in December 1997. Touted as the single most important project in the state, the redevelopment was to revitalize American shipping with a modernized shipyard and significantly increase employment and revenue opportunity for local businesses. It was to receive $429 million over five years from federal, state, and local government agencies.[2]

One primary objective of the project was to build a supplier/subcontractor infrastructure in the region.[3] As for M/WBE utilization, Kvaerner agreed to use good faith efforts to include M/WBEs as part of its supplier/subcontractor network, setting utilization goals of 20 percent MBEs and 10 percent WBEs.[4] The Minority Business Enterprise Council (MBEC), the Philadelphia Office of Housing and Community Development, and the Philadelphia Urban Affairs Coalition would monitor the utilization of M/WBEs and minority workers.

At the beginning of the project, however, contractors reported that Kvaerner was not providing bid and contracting information on a timely basis, particularly to M/WBEs. In October 1998, the Philadelphia City Council held hearings on this and other issues, receiving testimony from community organizations, Kvaerner representatives, and M/WBE owners. M/WBEs alleged that they did not have access to information and bidding opportunities at Kvaerner and that relations with the manufacturer needed improvement. These complaints prompted the City Council's Committee on Commerce and Economic Development to investigate the performance and compliance of Kvaerner Philadelphia Shipyard Inc. and the Philadelphia Shipyard Development Corporation (PSDC).[5] In November 1998, the Commerce and Economic Development Committee held a half-day hearing, inquiring into (1) provisions in place to ensure participation of M/WBEs; (2) plans for training minorities, women, and displaced former shipyard workers; and (3) staffing at the various city/state agencies and private organizations monitoring these issues.

In April 1999, Kvaerner announced its intention to sell its shipyards across the world, including its interest in the Philadelphia yard. This was considered a major setback for the region, prompting state and local officials to insist that Kvaerner honor all existing contracts and continue its management of the yard until a new buyer was found.[6] That same month, the Advisory Committee held a briefing meeting with Kvaerner representatives to discuss points raised at the City Council's November hearing and the impact of Kvaerner's announced departure on local business. The Committee was most interested in learning how the company planned to ensure solicitation of bids and contracts from M/WBEs.[7]

Kvaerner representatives confirmed that the shipbuilder had difficulties responding to M/WBE requests for information in the early phases of the project. Kvaerner later established a computerized bid process and sent letters describing bid opportunities to local M/WBEs that had been identified by city and state agencies. Kvaerner also held job and informational fairs throughout the Philadelphia area to recruit minority firms and workers.[8] It hired a compliance consultant, Productions bdc, to monitor its M/WBE program, provide information to the City Council, and submit monthly reports to the shipyard and city agencies. In its final report, for the period of June 1999 through January 2001, at the end of essentially all the shipyard construction, Productions bdc reported that Kvaerner's contractors and subcontractors included 32 MBE, 18 WBE, two DBE, and three minority women-owned companies.[9] Because Kvaerner plans, when building ships, that 70 percent of the value of each ship will be provided by suppliers and contractors, it is actively developing its local supplier network to include M/WBEs.[10]

In August 2000, the Pennsylvania auditor general released a performance audit of compliance with the master agreement by Kvaerner, Philadelphia Shipyard Development Corporation, and the state. The assessment was based on data collected from December 16, 1997 (the date of the original master agreement) through January 24, 2000.[11] In addition to the project agreements and the respective costs incurred by the parties and taxpayers, the audit assessed Philadelphia Shipyard Development Corporation's monitoring of Kvaerner's performance and whether the state exercised due diligence in assuring that the shipyard would ultimately benefit Pennsylvania businesses and workers.

In short, the audit found that regional businesses and workers, particularly those in Pennsylvania, had not benefited from the shipyard project to the extent expected.[12] The report highlights instances of excessive, wasteful spending and poor monitoring by state government entities. PSDC and Kvaerner were highly critical of the audit and its findings, offering a detailed written response that was made a part of the audit report.[13] According to the audit report:

• Many of the problems did not become known to government parties until late 1998 because of the Philadelphia Shipyard Development Corporation s failure to monitor Kvaerner's contractual obligations and its efforts to maximize the involvement of regional suppliers in the construction of the shipyard. This resulted in Pennsylvania companies receiving less than half of the construction contract dollars as of October 1999, less than 2 percent of the equipment contract dollars as of November 1999, and none of the information technology contract dollars as of July 1999.

• Kvaerner failed to meet the goals set by the master agreement for the use of M/WBEs and the employment of female workers. The audit cites 9.5 percent of total contracts awarded to MBEs and 1.7 percent to WBEs. This is well below the 20 percent and 10 percent goals for MBEs and WBEs set by the master agreement.[14]

During the affected agency review of the Advisory Committee s draft report, PSDC and Kvaerner submitted more recent employment data through January 2001. Their data showed the project exceeding goals both in contracts to women business enterprises (11 percent achieved versus 10 percent goal) and in minority employment (21 percent achieved versus 20 percent goal). In contrast, the project fell short of the goals set for contracts to minority business enterprises (15 percent achieved versus 20 percent goal) and in women employment (1 percent achieved versus 10 percent goal).[15] PSDC and Kvaerner also note that approximately 68 percent of the total cost of shipyard construction $176.6 million of $260 million was paid to regional companies and workers. Even where certain equipment was not available locally, local companies and workers were often used to do the assembly and installation for that equipment.

The Advisory Committee is concerned that developments at Kvaerner may be indicative of how state and municipal leaders proceed with a publicly funded project without fully taking into consideration M/WBEs and without effective monitoring.

Large-Scale Construction in Pittsburgh

Large-scale projects create expectations of economic revitalization. As in Philadelphia, Pittsburgh has seen its share of projects that drew considerable attention to M/WBE utilization and development. Three projects in particular PNC Park (the new Pittsburgh Pirates baseball stadium), Heinz Field (the new Pittsburgh Steelers football stadium), and expansion of the David L. Lawrence Convention Center drew the most. Conceived in the late 1990s, they are easily the largest public works projects in city history, reaching almost $1 billion in combined costs.[16]

As these projects proceeded, M/WBE owners, state legislators, and Pittsburgh City Council members raised concerns about M/WBE utilization and sought assurances for minority contractors and employees.[17] Project managers and city officials committed to 25 percent MBE and 10 percent WBE participation goals for contractors and subcontractors on the sites.[18]

Beginning in 1999, events began to unfold attracting the Committee's attention. The Pittsburgh City Council passed resolutions establishing a city goal of 25 percent minority and 10 percent female participation on city contracts over $250,000.[19] In July 1999, members of the African American Workers Union picketed the Pirates stadium site, claiming the group was blocked from participating in opportunities for construction of PNC Park.[20] Nine union members were arrested after having prevented access to a construction site.[21] That same year, a common pleas court ruled that a contract for work on PNC Park was improperly awarded to a firm that was not the lowest responsive bidder as specified under state law. This was an indication of problems to come. In early 2000, a women-owned steel fabricating firm, Industrial Fabricating Systems Inc., filed state and federal lawsuits against the Sports & Exhibition Authority and two steel companies, alleging that it was asked to accept pass-through payments from providers for steel for the stadium in exchange for not working on the project.[22]

Soon after, in June 2000, a three-month Pittsburgh Post-Gazette investigation uncovered allegations of wrongdoing on an even larger scale, namely that at least one-third of the $117 million in contracts purportedly going to M/WBEs actually went to firms owned by whites or to firms that no longer qualified as disadvantaged.[23] The Post-Gazette reported that minority- and women-owned contractors were asked to accept token payments for construction work on stadium construction jobs and pass through this work to majority-owned contractors.[24] After the story was published, the paper reported that the Allegheny county executive asked the FBI to investigate the awarding of project contracts as well as the county agency that certifies M/WBEs. The Pittsburgh City Council held hearings in June 2000 on problems with the city's certification process. M/WBE owners, NAACP representatives, and other groups described difficulties in the bidding process for the stadiums, confusing certification procedures, and illegal business agreements.[25]

In late June 2000, the City Council passed an ordinance radically changing the city's review and approval process for city contracts.[26] The prior ordinance mandated that all development proposals and all bids on city construction contracts over $250,000 include a plan for participation of minorities and women, and M/WBEs as contractors, subcontractors, and suppliers. All plans were reviewed and approved by the city's Minority Business Enterprise Review Committee. The new ordinance created an Equal Opportunity Review Commission (EORC) to review and approve all construction contracts over $200,000 as well as contractors compliance with M/WBE policies.[27] The ordinance requires that 35 percent of all work performed on these contracts be performed by city residents and sets up mechanisms for contractors to report their compliance to the EORC. It also allows the EORC to impose monetary damages for noncompliance.

In September 2000, the Allegheny County controller released an audit of the certification and monitoring procedures of the county's Minority, Women and Disadvantaged Business Enterprise Department. The audit reviewed outreach efforts to include M/WBEs on construction of the stadiums and convention center renovations. In his review, the controller found that (1) monitoring procedures failed to ensure that county departments and contractors were making good faith efforts to meet the county's M/WBE goals, (2) the department did not follow-up with contractors that failed to meet the county s 13 percent MBE and 2 percent WBE participation goals, (3) incomplete project information resulted in eligible firms being overlooked during the bid notification process, and (4) over $900,000 was spent by other government agencies to provide similar M/WBE certification and monitoring functions.[28]

Mason Tillman Disparity Study[29]

In 1995, the Pittsburgh City Council voted to undertake a disparity study and created the Disparity Study and Implementation Commission.[30] The commission was charged with reviewing plans for M/WBE participation, developing policy initiatives that could withstand legal challenges in the event the city chose race-conscious measures, and encouraging changes within the contracting process so that the city could achieve its 25 percent MBE and 10 percent WBE participation goals.[31] Over the past 20 years, the city of Pittsburgh had attempted to eliminate discrimination in contracting and had instituted various programs to increase M/WBE participation in its construction and professional service contracts.[32]

In 1999, the commission chose Mason Tillman Associates to conduct a disparity analysis of contracting by city agencies at a cost of $449,000.[33] Mason Tillman examined whether between January 1996 and December 1998 M/WBEs were underutilized in city contracts as a result of discrimination in construction, architecture, and engineering, and professional service contracts awarded by the city and its five authorities.[34] Mason Tillman studied the history of discrimination in the Pittsburgh construction industry, compiled statistics describing the utilization of minorities and women as contractors and subcontractors, and interviewed 32 business owners in an effort to explain the conditions represented by the statistical findings.

Mason Tillman's final report, released in September 2000,[35] showed that minority-owned businesses did not receive any construction contracts over $250,000 from the city of Pittsburgh.[36] Additionally, not a single minority-owned business received an architectural or engineering contract from the city, while firms owned by Caucasian males received over 95 percent of the architectural and engineering contract dollars.[37] The report also described general discriminatory conditions and barriers for M/WBEs encountered from prime contractors and city authorities, including many of the barriers noted earlier in chapter 3. For example, the study found the use of front companies, reduced opportunities for bona fide M/WBEs, and pressure applied to M/WBEs by both prime contractors and public officials to force M/WBEs to lower their prices or to increase their amount of work without increasing their bid in order to commit to more work for the same price. With regard to city agency enforcement, the report noted that the city lacked a certification process to verify the eligibility of businesses used to meet the minority and women business enterprise goals and that compliance measures were not strictly enforced, which contributed to the existence of a significant number of front companies.[38] The report also noted that the city's practice of bundling small projects under $25,000 into a single large contract called a B contract reduced the contracting opportunities available to small businesses.

Mason Tillman recommended that agencies (1) establish a certification program and compliance monitoring, (2) track subcontractor awards and payments, (3) create sheltered market programs for local businesses and M/WBEs, (4) reduce the size of contracts for goods and services, (5) publish a list of contract opportunities in local media regularly and notify certified M/WBEs about upcoming opportunities, and (6) unbundle small construction contracts.

As of August 31, 2001, no action had been taken on the study by the Pittsburgh City Council. According to Councilman Udin, the city has contracted with Mason Tillman to complete two additional studies, one on employment in Pittsburgh city government and one on employment of minorities by construction contractors doing business with the city.[39]