COUNCIL OF THE CITY OF PHILADELPHIA COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT - - - Room 400, City Hall Philadelphia, Pennsylvania Wednesday, December 12, 2007 10:30 a.m. - - - PRESENT: COUNCILMAN W. WILSON GOODE, JR., CHAIR COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN FRANK DiCICCO COUNCILMAN WILLIAM GREENLEE COUNCILWOMAN DONNA REED MILLER COUNCILWOMAN BLONDELL REYNOLDS BROWN COUNCILMAN FRANK RIZZO COUNCILWOMAN MARIAN B. TASCO RESOLUTION 040977 - Resolution authorizing the Committee on Commerce and Economic Development to hold hearings to examine the Minority Business Enterprise Council... RESOLUTION 070741 - Resolution authorizing the Committee on Commerce and Economic Development to hold hearings to review the annual disparity study and City contract participation goals... - - - V A R A L L O Incorporated Litigation Support Services Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, Pennsylvania 19103 215.561.2220 215.567.2670 2
Good morning. This hearing is called to order. This is a public hearing of the Commerce and Economic Development Committee on Resolutions No. 040977 and 070741. My name is W. Wilson Goode, Jr., Chair of this Committee. I note that a quorum is not present, but it's not necessary. To my left is Councilwoman Tasco, the primary sponsor of one of the resolutions. Also present are Councilwoman Reynolds Brown, Councilwoman Miller and Councilman Rizzo. The title of Resolution No. 17 040977, resolution authorizing the Committee on Commerce and Economic Development to hold hearings to examine the Minority Business Enterprise Council with regard to Chapter 17-500 of The Philadelphia Code and Executive Order No. 23 1-03, and to assess the efforts to improve participation levels and utilization goals for Minority, Women and 3 12/12/07 - COMMERCE - RES. 040977 & 070741 Disadvantaged Business Enterprises in City contracting and procurement and the effectiveness of attempts to eliminate related discriminatory and unfair practices; and Resolution No. 070741, resolution authorizing the Committee on Commerce and Economic Development to hold hearings to review the annual disparity study and City contract participation goals released by the Finance Department pursuant to Title of The Philadelphia 14 Code. 15 Our first witness is our City 16 Controller, Mr. Butkovitz. Please 17 approach the witness table. And before Mr. Butkovitz proceeds with his testimony, Councilwoman Tasco would like to make an opening statement.
Thank you very much, Mr. Chair. I just want to thank everybody for coming out this morning for this 4 12/12/07 - COMMERCE - RES. 040977 & 070741 hearing and just give some brief remarks to kind of set the tone for what we're going to do here today. Last Friday, the Urban League of Philadelphia released their 2007 State of the Black Philadelphia report. As the Daily News reported, the report painted a grim picture on the issue of race and inequality in our city. In the report, the median household income of blacks is $26,728. This figure is more than $15,000 less than the median household income of whites. One of the principal ways to address this income gap is to increase the number of minority businesses in Philadelphia. In this regard, the City Minority Business Enterprise Council is charged with helping minority businesses in our city. However, and based on the Controller's recent report, reforms are needed to ensure that MBEC meets this goal. Today we will hear testimony 5 12/12/07 - COMMERCE - RES. 040977 & 070741 from our City Controller regarding his department's audit and analysis of MBEC. Further, we will also hear testimony from Erik Moses, Esquire. Mr. Moses is the Director of Small and Local Business Development for Washington, DC. Finally, we will hear testimony from Beverly Harper of Portfolio Associates. Through this hearing, we plan to gain insight on how MBEC can be changed, what other cities have done to address this issue and how we can move forward to address this issue in the new mayoral Administration. So thank you, Mr. Chair, and thank you, Mr. Butkovitz, for coming to talk about your report and move forward.
Thank you. Good morning, Chairman Goode and Councilman Tasco, members of the Commerce and Economic Development Committee. I'd like to thank you and Councilman Tasco for giving me the opportunity to discuss the Controller's Office report entitled 6 12/12/07 - COMMERCE - RES. " I have sitting up with me today our Deputy Controller, John Thomas, and Isa Al-Muid, who is the Senior Auditor. These two individuals actually led the substantial amount of work in the study that we released. First, I'd like to take a moment to acknowledge Howard Rye, the former Diversity Affairs Director and Policy Planner in the Office of the President of this esteemed body. As you all know, Howard was a dedicated individual at any task he undertook. He was committed to the concerns that plagued humanity and the rights and protection of people on so many issues such as prison re-entry programs, youth education, gun control and economic development. Howard was instrumental in working with our staff for over a year in 7 12/12/07 - COMMERCE - RES. 040977 & 070741 planning and discussing the many issues related to minority participation in Philadelphia. In April of 2007, he testified at one of our hearings and eloquently spoke about the barriers facing MBEC-certified firms. And I say I got out of order, but I wanted to thank Mr. Thomas and Mr. Al-Muid for helping me for the study. So thank you again. Shortly after being sworn in as City Controller last year, our office initiated this investigation to examine the barriers facing minorities, women and disabled-owned businesses. Minorities represent 55 percent of the population of our city, yet they are awarded less than 12 percent of City contracts. This is patently unfair in a city that models itself on the ideal of fair and equal opportunity for all of our citizens. As part of our review, we interviewed many minority business owners 8 12/12/07 - COMMERCE - RES. 040977 & 070741 who felt that the Minority Business Enterprise Council, MBEC, and other City agencies were not effectively carrying out their mission to increase minority participation in City procurement and contracting. We also mailed out a comprehensive questionnaire to all MBEC-certified firms. We held three public hearings to investigate allegations aimed at MBEC and to explore ways to increase minority participation in City procurement and contracting. And we also audited 61 public works construction project bid sheets to determine actual minority participation in the projects. In the course of our investigation, we found that despite some progress in recent years, minority, women and disabled-owned businesses still face several significant barriers that hinder their ability to gain a fair share of contracts generated by the City of 9 12/12/07 - COMMERCE - RES. 040977 & 070741 Philadelphia. Some of the barriers to minority participation in the City's procurement and contracting process are unnecessary granting of waivers from MBEC participation requirements to prime contracts; bid packages are too complex for smaller contractors to participate as prime contractors; lack of availability of bonding and insurance for smaller minority contractors; lack of a comprehensive plan of action to address diversity and inclusion in City contracting and procurement; and a slow certification process. Barriers during participation in the City's procurement and contracting process are inadequate monitoring and enforcement of minority participation; deficient contract language and contract requirements; MBEC-certified firms are included in bid proposals, but are marginalized and don't actually get the work after the contract is awarded. Barriers to the growth and 10 12/12/07 - COMMERCE - RES.
040977 & 070741 development of minority, women and disabled-owned firms are slow payment by the City of Philadelphia and/or prime contractors; limited access to working capital; lack of technical assistance for small businesses before and after contract; lack of minority participation goals for not-for-profit contracts; inexperienced and understaffed MBEC office. Our review of recent City reports on disparity and diversity revealed that the participation data was overstated. The key inclusion data should show the number of minorities actually receiving contracts from the City. However, these reports present numbers based on incumbrance data. In other words, these reports, including MBEC's 2006 annual disparity study, are based on promised participation as reported by contractors prior to any work being done. These promised amounts 11 12/12/07 - COMMERCE - RES. 040977 & 070741 represent goals only and do not reflect whether a minority firm was actually hired and paid the original promised goal amount. At present, the City cannot accurately determine how much of its contracting dollars actually go to minority, women or disabled-owned businesses. The City does not have a tracking mechanism in place to verify payments from prime contractors to MBEC-certified subcontractors. The core issue for addressing many of the barriers discussed in our report is a need for a collective commitment by all levels of City government to implement, monitor and enforce diversity and inclusion measures. This commitment would be demonstrated by the quality and quantity of staff, technology and financial resources that are allocated to the City's anti-discrimination program. As a result of our 12 12/12/07 - COMMERCE - RES. 040977 & 070741 investigation, we made 13 key recommendations. One, restructure MBEC by making the majority of MBEC's administrative and enforcement functions a cabinet-level reporting position within the Mayor's Office. The contract monitoring and oversight function should be transferred, in our view, to the City Controller's Office. Because MBEC has not taken the proper enforcement action against non-compliance contractors, a new counsel should be appointed who will properly monitor and enforce both the spirit and the law of the City's minority anti-discrimination policy. Two, improve contract monitoring and enforcement by establishing more effective procedures for monitoring all joint ventures and subcontracting relationships sanctioned by MBEC. All relevant City departments and agencies should be sanctioned for failure to properly administer and enforce the City's anti-discrimination 13 12/12/07 - COMMERCE - RES. 040977 & 070741 policy, which includes several penalties for prime contractor non-compliance, including withholding of payments, termination of contracts in whole or part, suspension from City contract bids for up to three years and recovery of one percent of the total dollar amount of the contract for each one percent of the commitment shortfall. Three, eliminate the seven-day rule, which presently allows a prime contractor to identify its proposed minority subcontractors seven days after the awarding of the contract. This rule undermines the integrity of the City's anti-discrimination policy. The City should require prime contractors to retain MBEC-certified subcontractors as a prerequisite for winning a contract. Four, standard contract language modification should include privities of contract for third-party minority contractors. In other words, the subcontractor should have a right as 14 12/12/07 - COMMERCE - RES. 040977 & 070741 a contractor or right to sue under the contract just like the general contractor has. Five, a participation waiver should only be granted after a prime contractor clearly demonstrates that a good-faith effort was made to identify quality minority participants.
Six, reduce bid packages and contract sizes and require purchasing departments and other relevant agencies to unbundle requests for proposals, RFPs, and bid packages unless contracting agents can demonstrate that bundling provides significant financial or other tangible benefits to the City. Seven, create a bonding assistance program for small and emerging businesses so they can participate as prime contractors rather than as subcontractors. Eight, implement prompt payment policy for subcontractors. The City should penalize purchasing departments 15 12/12/07 - COMMERCE - RES. 040977 & 070741 and prime contractors who fail to promptly pay subcontractors. The City should also allow subcontractors to receive mobilization payments in which a portion of a project's value is paid in advance to pay for start-up costs and other early-stage expenses. Right now the City does provide that for prime contractors, but they don't have such a program for subcontractors. The City should change its invoicing process to require prime contractors to document payments to subcontractors within a reasonable period of time so that they could show when they get paid, the subcontractor gets paid. Nine, provide technical assistance and training to minorities in the area of project and financial management, bonding insurance, bid preparation, marketing and technology support. Ten, promote more minority collaboration by encouraging joint 16 12/12/07 - COMMERCE - RES. 040977 & 070741 ventures among minority contractors. Eleven, set goals for not-for-profit contracts. The City should establish policy and procedures for setting goals for minority participation in City contracts with not-for-profit organizations. These organizations receive approximately 75 percent of the City's annual contracting dollars. Twelve, streamline the MBEC certification process and establish a goal to process new certification applications within 60 days and recertification applications within 30 days. And, 13, the City of Philadelphia should facilitate access to capital by establishing the creation of public/private financing mechanisms that can provide working capital, mobilization and term loans to businesses that have been awarded contracts through the City's minority participation process. 17 12/12/07 - COMMERCE - RES. 040977 & 070741 Again, thank you very much for the opportunity to come in here and present our findings.
Mr. Butkovitz, thank you for your testimony. Let me note for the record we were also joined by Councilman Greenlee. Are there questions for this witness? Councilwoman Tasco.
Thank you very much for your testimony. Boy, it sounds like if you worked your recommendations out, we have a pretty good system. But I just wanted to ask a couple of questions, because you were pretty thorough in your testimony and I think you answered the question in another portion of your testimony when you talked about one of the 13 recommendations. No. 1, restructure the Minority Business Enterprise Council by making the majority of MBEC 18 12/12/07 - COMMERCE - RES. 040977 & 070741 administrative and enforcement -- I wrote it on the wrong line. That's all right.
I think maybe putting the enforcement in your office, because from time to time -- on occasion we have called your office because the vendors/contractors have not gotten paid. I think Councilwoman Donna Reed Miller has introduced legislation somewhere in this body about the timely payment of contractors, and certainly if you're doing the monitoring, what would that do to help us assure the timely payment for these vendors?
Well, our office has been able to cut down the period of time that invoices are sitting in our office, but we're not in control 19 12/12/07 - COMMERCE - RES. 040977 & 070741 of the whole payment process. It's really got to go through the City Treasurer. So when it comes out of the Finance Department and comes to us, we get it turned around within four days. What we're suggesting for our office here is that we do a job of checking on the numbers, of the compliance on it, but Finance and the Treasurer are going to have to get these bills paid faster. We ran into this problem at the School District, and sometimes the question is, is it just the technology isn't up to date or why can't they get -- but then you run into situations where there's cash flow situations and you see that they've designed these systems because the City or the School District is depending on not having to spend this money within the fiscal year. The federal government has a policy of paying these vendors within 14 working days. In Philadelphia it's 20 12/12/07 - COMMERCE - RES. 040977 & 070741 common for it to be 90 days or more. And you're talking about people that are on a very narrow margin to begin with. Who in the world would be able to keep their employees paid and keep functioning while waiting for 90 days? A lot of people have to say, The heck with it, we don't even want City work. That probably is one of the most important things the City could do to improve performance in this area, is to make sure that these small contractors who are operating on a narrow margin get paid timely.
That is very important, and sometimes I believe the City may pay a higher cost because some of the contractors may build in the cost of the slow payment.
-- for the 21 12/12/07 - COMMERCE - RES. 040977 & 070741 effort. You also talked about -- you were just going so fast, and I just saw this this morning. You said the City provides a service to the major contractor but not the subcontractor.
If you're the prime contractor on a project, you can get -- I forget -- what's the percentage; do you remember?
Good morning. My name is John Thomas, Deputy Controller. Mobilization funds can be provided between 10 to 15 percent of the contract for a prime contractor, and as the Controller said, that's for start-up, 22 12/12/07 - COMMERCE - RES. 040977 & 070741 early-stage costs and --
So the City is giving them the money to get started, but they're the people who are already rich and established. The people that don't have any money don't get anything to tide them over and they got to wait longer to get paid. It's a really uneven type of result.
Is this a function of the MBEC office or a function of the Procurement Department?
It's alive under the procurement rules. It's not an MBEC. It's the City procurement rules that allow this.
Has there been any discussion with the Procurement Department to find out why they do not provide this service to subcontractors?
No, we haven't. They just say that the rules allow it for the prime contractors. I think this Council and the City would have to make a 23 12/12/07 - COMMERCE - RES. 040977 & 070741 determination that the City thinks that it's a needed service for small firms and make it available. Procurement would just have to change its rules to allow it.
I'll stop and get my questions together while other people have questions. Thank you.
Let me note for the record we've also been joined by Councilwoman Blackwell. Councilwoman Reynolds Brown, then Councilwoman Miller.
Let me also thank you for the comprehensive report, which will really both inform and instruct us as Councilmembers how we can continue to make an impact and a dent on this issue. Item No. 8, what can we do, what would you recommend in instances 24 12/12/07 - COMMERCE - RES. 040977 & 070741 where parts of government; namely, the School District, make a decision not to pay a contractor because either the contractor submitted their paperwork late or by the time the paperwork from the contractor comes in, the feedback we get from the School District is, Oh, we've spent the money, it's after the fiscal year and the money is no longer there. I mean, the situation is where the businessperson has done the work, possibly submitted their paperwork late but have been told, Sorry, the money is spent and we cannot, therefore, pay you.
Look, the School District is completely out of control. They've essentially had a policy of not paying people for nine months because they were operating under the secret deficit for a long time. So they were carrying it on the back of their vendors and suppliers, and that's just inexcusable. Thank God the City has never 25 12/12/07 - COMMERCE - RES. 040977 & 070741 been in that kind of situation. I mean, the City has got a surplus, about a $300 million or $260 million surplus in their General Fund. So when we're dealing with the City part of it, it's not that the City doesn't have the money to pay the bills. The specific problem that we focused on is that the contractors can get paid, albeit even they get paid late, but how do we make sure that the subcontractors under them are also getting paid. And in terms of that kind of problem, we would suggest that there's a variety of ways that could be handled. Either the City could issue the checks to the contractor and to the subcontractor or the City could require some kind of documentation from the contractor that you paid the subcontractor before you get paid or before you get your next payment. We think that's the approach to assure that that money gets into the hands of the subcontractors. As far as the School District 12/12/07 - COMMERCE - RES. 040977 & 070741 is concerned, they got to operate on a balanced budget so that they have as much money as they need to complete their year and that people aren't misled.
Okay. Secondly, Item No. 11, talk about that a bit. Do you know of other municipalities that indeed have this practice in place? It's about setting goals for not-for-profit contracts.
Some of the cities that we think have those type -- we don't have data on the exact percentage of participation of the other cities, but one of the cities is Chicago. They have some form of goals for non-profit contracting.
For the record, the City does now, and we're hoping they're going to change that goal. But as a result of the Charter change and subsequent legislation, where they have to set annual participation goals, they've set a goal of five percent for 27 12/12/07 - COMMERCE - RES. 040977 & 070741 DBEs, but those goals are being reviewed as a result of our last hearing on the disparity study and goals. So we're hoping that five percent will increase, but the City has in fact, for the first time, set a goal for not-for-profit contracts.
Mr. Chairman has addressed that issue. Provisions that call for penalties and clawbacks, if you will. I'm looking to see which, if any, of those actually address that issue.
We talked about a penalty for late payment and for not meeting the threshold of what the contractor is guaranteed to provide to subcontractors.
I forget which number that was, but I think we were talking about a one percent penalty for every percent by which they miss their goal. 28 12/12/07 - COMMERCE - RES. 040977 & 070741
And, Councilwoman, that's currently allowable, but it's just not enforced.
Whoever you put in charge of the minority business, be it MBEC or whatever you're going to call the program, you have to give it the power from the top. And the Controller says the person at the top got to -- they have to be feeling power from the people at the top that they can carry out their responsibility.
Okay, then. Thank you very much. Thank you, gentlemen. 29 12/12/07 - COMMERCE - RES. 040977 & 070741 Thank you, Mr. Chairman.
Hi. Thank you. Thank you. Good morning and thank you for your -- this is really good testimony.
We run into all these at different times, but it's good to see it in a list, in black and white. I think that many of the problems start from the waiver stage.
Do you have any data that says how many contracts were awarded and how many of those received a waiver?
No. We don't have the detail on the number that were waivered, but of some of the contracts that we did review and during our audit, we noted that some of the waivers -- we questioned whether those waivers should 30 12/12/07 - COMMERCE - RES. 040977 & 070741 have been granted. It appears that contractors just requested waivers and they were granted, without thoroughly checking to see whether it was really necessary or whether the contractors could really find qualified firms to participate on their contracts.
Because the terms of "good faith" or "best efforts," it's not tangible and it's hard to measure. I ran into the waiver problem at a contract that was being issued at a playground to build actually a new structure and I just couldn't believe that people were granted a waiver. You can't find minorities? I mean, you know what kind of trades goes into building a building. So you can't tell me that you can't find minority firms. So I ran into that issue maybe five years ago, and since then, we have been pretty dedicated with making sure waivers are not issued on projects in our 31 12/12/07 - COMMERCE - RES. 040977 & 070741 district. But also I wanted to talk about the fact that there are lots of contractors that won't even bid because they know the whole system for payment is too slow and it drives them bankrupt. We get all the calls in our offices to help out. Enforcement, I guess, is the key to any of this, but we have to, I think, always think about -- and I think you did address it -- some type of dispute resolution when it comes to paying them. Someone else has to be involved in the resolution of the dispute other than just the two contractors. There needs to be some type -- if the monitoring arm would be involved in a dispute, if it was a dispute.
Right now you have prime contractors who have all the 32 12/12/07 - COMMERCE - RES. 040977 & 070741 power in the relationship. The whole point of this regulatory system was to provide entryway for people who didn't have power and people who didn't have money, but the size of the contracts awarded are too big. If you don't have money, then you can't qualify to do the work to get the money. So they were made junior partners and subordinate to the prime contractors, but they are potential competitors of the prime contractors. And now they have -- they're locked in a relationship where the prime contractors are always able to keep them down and keep them from growing large enough to become their competitors. So there's something wrong with the way that power is allocated, and there needs to be more of a level playing field and more of -- the subcontractors have to have similar powers to enforce their statute to what the general contractors have, and that could include the right to sue directly or to deal 33 12/12/07 - COMMERCE - RES. 040977 & 070741 directly with the City or with the City enforcing that they get paid in time. But right now they are at the mercy of people who see them as a threat.
Well, I think that there are lots of unfair practices. I've consistently said -- I've been here years and we've been 10 talking about the same thing for 12 11 years, how do we include -- how can we 12 put together inclusion in all this. So I guess enforcement is the strong arm. That's going to be the arm. If people just won't abide, then you have to figure out a way to enforce. Your recommendation that the oversight monitoring be at the Controller's level, would that help with enforcement?
Yeah, because first of all, it would be no nonsense on what the numbers are. Our people are really very good at counting. But the other impression that our people had is 34 12/12/07 - COMMERCE - RES. 040977 & 070741 that there's a strong cultural bias on the part of the departments to continue to do business with the people they've always done business with. They have to comply with what the rules are, but when everything is said and done, they really prefer dealing with a narrow group of contractors that they're used to. So that's got to get broken up too, and the bureaucracy needs to be more in sync with what the policy of the Council and the policy of the City is.
So when the Procurement Department puts out a bid for a project or for a service, the prime contractor has to submit their minority participation?
And that 35 12/12/07 - COMMERCE - RES. 040977 & 070741 goes to MBEC, that information goes to MBEC?
Okay. So do they keep a list of certified minority contractors?
Well, let me correct you so far, because the prime contractor submits a list or within seven days after -- they promise that within seven days they will submit a list, and that's the end of it. What we find is that a lot of minority subcontractors whose names were on the list said, What? My name was on the list? I never got any money. I never got any work. And there's no mechanism for -- MBEC certifies them as MBEC-certified contractors, but it doesn't have any role in determining whether they actually got any work or any money. 36 12/12/07 - COMMERCE - RES. 040977 & 070741
It was our impression that the prime contractor had to submit prior to receiving the contract the name of the subcontractor.
Let me clarify. That was a policy that it was prior, but MBEC had started last year using the seven-day rule, which was -- especially when certain state and federal work, when state and federal dollars were used in the contract, they were allowing the seven-day rule, which, as the Controller said, allowed for seven days after the awarding of the contract for them to identify their minority participants. And that put more pressure -- that gives more power to the prime contractor, because once he or she knows that they have the contract, then they can put more pressure on the subs in terms of what 37 12/12/07 - COMMERCE - RES. 040977 & 070741 they are willing to -- how much they are willing to give to them, how much price they are willing to pay to them. So it's just contrary to the whole goals and objectives of the MBEC program.
Well, somewhere along the line I thought at one point the prime contractor had to submit the minority participation with the bid when they bid on the project, when they submitted the bid to the City of Philadelphia.
In general, Councilwoman, that's the general practice and that had been the practice for a number of years, but as I suggested, last year they started utilizing this seven-day rule on certain contracts, which allows for them to submit it after the bid. But the general practice had been and has been that they submit it prior to the bid and it was included as part of the bid in the contract.
Do you 38 12/12/07 - COMMERCE - RES. 040977 & 070741 know why they might have changed that policy?
Point of information on Councilwoman Tasco's question. Would it be fair to say, then, that there is no trigger for verification of subcontractors that come in with the bid?
When I hear you say that you get a list and that list is taken as gospel, we've had experiences where we get calls from MBEs and WBEs who are surprised and have the discovery that they appear on the list.
So what we're hearing you say is that there's no 25 trigger for verification, right? 39 12/12/07 - COMMERCE - RES. 040977 & 070741
Right. I guess you could consider some kind of signature requirement that if you're going to be listed, you have to acknowledge that you've been talked to and you consent to have your name listed in the bid.
And there's no follow-through from MBEC presently to verify that these subcontractors are part of the contract?
There should be. That's their policy, but we found that in a lot of cases, it did not occur. And even after -- even if they're listed to get the contract, there's definitely not adequate follow-through after the work starts to see whether they actually do any work. So being listed is one thing and being called before the contract is awarded is one thing, but then after the contract is awarded to the prime, there's 40 12/12/07 - COMMERCE - RES. 040977 & 070741 no follow-through and monitoring to see whether these minority firms are actually doing any work, whether they're actually getting the amount of work that was promised to them or whether they're actually getting paid in a timely fashion.
What role should the City take to enforce or penalize contractors that don't use minority subcontractors?
Well, first of all, that's figured into their bid application. So, first of all, they have to comply with the thresholds. The problem is that they shouldn't be allowed to make pretend that they're complying. You need to check that there's actual compliance. And we think, first of all, there needs to be somebody other than MBEC who is checking the numbers, and 41 12/12/07 - COMMERCE - RES. 040977 & 070741 we're suggesting the Controller's Office to do that, because you're not going to check yourself accurately. And then, secondly --
I mean the role of MBEC and the mission of MBEC is to certify and monitor and verify, I mean, that is supposed to be their mission. That's why we set the office up.
But you see now it's a conflict of interest, because if they're not doing their mission well, they're not going to issue a report card on themselves saying that we're not doing it well, right? And at the other end, MBEC or the agency responsible for this needs to be more powerful. In other cities it's either the Mayor's Office or the Law 42 12/12/07 - COMMERCE - RES. 040977 & 070741 Department that when they bark, people jump, because they know something is going to happen. MBEC largely doesn't have that image or reputation. There's a feeling they can be ignored.
Okay. Let me just ask one other question and I think I'm done, because you've done a very thorough job here of citing the barriers to participation. You talked about the non-profits, and Councilman Goode mentioned that we have a five percent goal right now to be inclusive. Did you see any minority participation or did you audit any of the non-profits? Most of them are DHS or Health Department, the social services agencies.
We did not audit those contracts because we know that the rules don't require -- it's not required, and we know that it's like 75 percent of the contracting dollars. So we just know that in order -- if the City wants to 43 12/12/07 - COMMERCE - RES. 040977 & 070741 improve the amount of participation or level of participation, if it had requirements on those contracts, I think that would help improve the amount of participation.
What area would you see the requirement taking place, in terms of employment or their purchasing of services?
I think in both areas it's important, because a lot of the non-profit -- they're non-profit, so a lot of them are providing service and a lot of dollars -- DHS is one of the biggest non-profit organizations that receive contracts, DHS and Health, and a lot of their dollars float through to providing services, and that is through 44 12/12/07 - COMMERCE - RES. 040977 & 070741 their employees. So you could look at having levels of participation in the employment of those non-profit agencies. But also those non-profit agencies also buy goods and services to operate. So they could have participation in the goods and services that they buy to provide the service to the City.
Yes. An aside, did you discover in your findings and discovery on this issue that -- let me ask the question differently. Were women and minorities treated with the same level of lack of support for what MBEC could and should do? Did you find any distinctive differences between the treatment of minority, MBEs, and women business owners?
Not in our review we didn't. 45 12/12/07 - COMMERCE - RES. 040977 & 070741
Okay. Did you discover in your review the lack of the department's ability to treat differently MBEs and WBEs who had a longstanding certification with the department but were not treated differently because of their track record? Do you follow me? One treatment for those who have been certified forever and another treatment for those who are brand new on the certification process.
I think they're both treated poorly. I don't think incumbency helps minority contractors in this system. When they come up for renewal or whatever, they go through a slow process also.
And in your estimation based on your findings in the report, do you think it makes sense, do you believe it's reasonable to have different tracks of treatment given the status of that MBE or WBE?
Once you've 46 12/12/07 - COMMERCE - RES. 040977 & 070741 been originally certified, it should be easier to check your continued compliance than it is when you're breaking in for the first time. So there's really no 6 need for them to go through these long delays like the ones they've been certified.
And the then, finally, again based on the homework you've done --
This just actually triggered a question. What is your understanding of the certification process? We've had a lot of discussion about that in previous hearings, particularly on the disparity study and the participation goals, and testimony has been made that MBEC is not just certifying whether a business is actually owned by a minority person or a woman or disabled person, but in some 47 12/12/07 - COMMERCE - RES. 040977 & 070741 cases MBEC is trying to determine who they believe is worthy to receive business. Did you receive testimony to that regard?
This reminds me of something. After you're done, I got something to say.
The question is, is MBEC simply certifying whether a business is actually owned by a minority, a woman or disabled person or has it been your experience in terms of testimony you received, because we have received testimony, that MBEC is also, in addition to that, going through these businesses with a fine-tooth comb to determine, in their estimation, whether they believe that those businesses are actually worthy to receive City contracting business, which we don't believe is the mission of MBEC. 48 12/12/07 - COMMERCE - RES. 040977 & 070741
We had some testimony to that effect from some of the witnesses and some of the people we did talk to during our surveys, that those kind of things were happening.
And I would like to note, Councilman, also that one of our other possibilities is that we could rely on certifications that have already been accomplished by other governments, whether New Jersey or the state government. Philadelphia insists on doing everything itself from scratch at a time when they don't have the capacity to get it done. So there are shortcuts that are reasonable that are available.
And I think part of this is what I'm saying, the added type of examinations that they're doing, which is not part of their original mission.
Thank you. 49 12/12/07 - COMMERCE - RES. 040977 & 070741
That just triggered another question. As of August, there's now a new expectation that all persons seeking to do business with the City have to have an EOP plan. What did you discover in your work with regard to the adherence of this new expectation?
Councilwoman, our audit work was done prior to the implementation of that plan.
All right, then. Thank you very much. So then let me ask, is there any municipality in the country that gets it and does it right when it comes to MBE/WBE participation? Is there any model city that we can look at that gets it?
I think we list a number of model cities in here. I don't remember what page it's on, but Chicago, Baltimore and Atlanta all have 50 12/12/07 - COMMERCE - RES. 040977 & 070741 pretty good records. I think even Boston.
I think Boston even had some things that we could learn from.
But some of their policies are currently being challenged, but --
I said some of their goals are being challenged at this time, but in terms of, as the Controller said, their program, it's a pretty good program. Their performance is pretty good in Boston. But also in terms of the enforcement, one agency that we looked at was the federal government. Their enforcement and compliance and payment process is superior to any of the cities, and so the City of Philadelphia can look toward the federal program to get ideas 51 12/12/07 - COMMERCE - RES. 040977 & 070741 in terms of just the payment process.
I forget the exact statistic, but one of the stunning points that was made to us is that the Bush Administration's performance on minority inclusion and participation is better than the City of Philadelphia's.
Just one thing for the record. Mr. Thomas or Mr. Butkovitz, for the record, it also is not just a matter of policy, because this Council actually passed legislation in 2003, the Ortiz bill -- I think it was 030125 -- that basically was based upon the Baltimore model and best practices that was never implemented by this Administration. So it's not a matter of not having policy in place. It's also a matter of this Administration not implementing that policy.
Well, again, thank you for the report. It 52 12/12/07 - COMMERCE - RES. 040977 & 070741 gives us much homework to do going forward. Thank you very much.
Thank you very much, and I applaud you in your work, Controller.
Our next witness is Erik Moses. Good morning, sir, and welcome to Philadelphia. Please state your name for the record and please proceed with your testimony.
Good morning, Chairman Goode. My name is Erik Moses. I am the Director of the Department of 53 12/12/07 - COMMERCE - RES. 040977 & 070741 Small and Local Business Development in the city of the District of Columbia, and with me is my general counsel, Ms. Nicole Becton. Again, my name is Erik A. Moses. I'm the Director of the District of Columbia's Department of Small and Local Business Development, and I'm pleased to appear before this body to testify in connection with this Committee's examination of the Minority Business Enterprise Council. First I want to share some background on how we run our program in the District of Columbia and some similarities of mission between our agency and your MBEC before addressing some of the recommendations that you just discussed and have read in your Controller's report. The mission of the Department of Small and Local Business Development is to foster the economic growth, development and retention of 54 12/12/07 - COMMERCE - RES. 040977 & 070741 District-based businesses through supportive legislation, business development programs, advocacy within the public and private sectors, and tracking and monitoring and enforcement of agency and private contract compliance. By actively and vigorously pursuing this mission, the agency seeks to accomplish three primary outcomes: Stimulate and expand the local tax base of the District of Columbia; increase the number of viable employment opportunities for District residents; and extend economic prosperity to local business owners, their employees and the communities that they serve. The DC Department of Small and Local Business Development is an agency that has experienced enormous change over the last two years, beginning with the passage of the Small, Local and Disadvantaged Business Enterprise Development and Assistance Act of 2005. This Act has significant changes to the 55 12/12/07 - COMMERCE - RES. 040977 & 070741 laws affecting the District's race and gender-neutral certification program, known as the Certified Business Enterprise, or CBE, program and mandated the conversion of the former Office of Local Business Development into a full-fledged cabinet-level department. The Act signaled a formal shift in emphasis of the agency from certification and DC agency compliance reporting to value-added business development services. By calling for the establishment of two new programmatic areas to accompany our previously existing Office of Certification, Compliance and Enforcement, an Office of Business Opportunities and Access to Capital and an Office of Training and Education were added. The Act contemplates an agency that will engage in the hard work of facilitating the growth and development of local businesses via full-time advocacy, 56 12/12/07 - COMMERCE - RES. 040977 & 070741 oversight, and program and policy development. In addition, this past year, the commercial revitalization programs in the District of Columbia were transferred under the purview of our department, thereby consolidating small business services into one government agency. This programmatic and philosophical change is one that the local business community has long desired and universally accepted. Our challenge amidst all of this change has been to stabilize and improve current operations in the certification and compliance areas while developing programs and hiring staff for our Business Opportunities and Access to Capital and Training and Education Divisions, and while integrating and enhancing our Commercial Revitalization Unit. While there remains much to be done to improve the operations of the agency to what I believe are acceptable 57 12/12/07 - COMMERCE - RES. 040977 & 070741 levels, I'm pleased to report that we're making substantial progress.
To give you an idea of the organization that we inherited when I joined the department in March of 2006, the agency was staffed with only six full-time employees and as many as five extended-term temporary employees through temporary services. A year and a half later, our agency has increased the number of full-time employees from six to 26. It is worth noting here, Mr. Chairman, that these legislative and institutional changes would not be possible without the very strong support and leadership of our Mayor, Mayor Adrian M. Fenty, and our Deputy Mayor for Planning and Economic Development, Neil Albert, as well as Councilmember Kwame R. Brown, the Chairman of our DC Council Committee on Economic Development and your counterpart, each of whom understands and appreciates the importance of a robust small and local 58 12/12/07 - COMMERCE - RES. 040977 & 070741 business community to the economic vitality of our city. We have reviewed the special report issued by the City of Philadelphia Office of the Controller regarding barriers facing minority, women and disabled-owned businesses in City procurement and contracting. We encourage this Council to carefully consider the well-reasoned recommendations from the Controller's Office, and we are happy to share our experiences with restructuring and improving our city's local business program. Having faced similar challenges in reforming our department, we understand the hard work it will take to implement the necessary changes to transform Philadelphia's MBE, WBE and DSBE program into an effective economic development agency of which this city can be proud. The first and most important step in making this transformation is 59 12/12/07 - COMMERCE - RES. 040977 & 070741 ensuring the support and leadership of Philadelphia's Mayor-elect and of the City Council. Without the political will and the commitment to economic inclusion from the City's leadership, real progress and institutional change are unlikely. The Controller's Office first recommendation is to transform MBEC's administrative and enforcement functions to a cabinet-level reporting position within the executive branch and to shift contract monitoring and oversight functions to the Controller's Office. There are advantages and disadvantages to this approach of splitting responsibilities between different organizations. Nevertheless, we could not agree more with the importance of elevating the primary responsibilities for the program within the executive branch. Doing so signals the City's commitment to these issues and focuses increased attention and oversight on the importance of economic inclusion. 60 12/12/07 - COMMERCE - RES. 040977 & 070741 In conjunction with and as a result of this elevated position within the executive branch, the new and improved operation must receive the funding and staff necessary to carry out its mission. In the District, Mayor Fenty's leadership and focus on issues of economic development have allowed our department to grow substantially in size and areas of responsibility, and as a result, we are better able to serve our local business community. The Controller's Office second recommendation is to improve contract monitoring and enforcement. Your MBE, WBE and DSBE ability to demand transparency and accountability is critical to the success of a program that really seeks to materially alter the status quo. Over the past several months, DSLBD has focused increased attention on restructuring and strengthening our compliance program for monitoring District of Columbia 61 12/12/07 - COMMERCE - RES. 040977 & 070741 government contracts as well as local business participation on private development projects. On the public side, our law requires that all contracts under $100,000 be set aside for certified small business enterprises. In addition, each agency in the District of Columbia is required to expend at least 50 percent of their discretionary budget with certified small business enterprises.
The agencies must submit quarterly reports to our department, and quarterly and annual reports are submitted by us to our City Council. During the fiscal year, if we determine that an agency is falling far behind its 50 percent spending target, we institute mandatory SBE set-asides for contracts of that agency. We have mandatory 35 percent subcontracting requirements for any construction contract over $250,000 and for any non-construction contract in which any portion will be subcontracted. Prime contractors are required to submit 62 12/12/07 - COMMERCE - RES. 040977 & 070741 a subcontracting plan prior to contract award which must identify the certified businesses that will receive subcontracts. Similar to the situation in Philadelphia, in the past we have had difficulty monitoring and enforcing this subcontracting requirement and have received reports that certified businesses were listed on the prime contractor's subcontracting plans, but never brought on board as subcontractors after the contract was awarded. It is particularly difficult to monitor this activity because our procurement office, which receives the subcontracting plans and awards the contracts, is a separate agency from our department. To combat this problem, we have established a close working relationship with our new Chief Procurement Officer and his staff so that we can share information and be better apprised of contractors that do not fulfill their subcontracting obligations. 63 12/12/07 - COMMERCE - RES. 040977 & 070741 Members of our City Council have also recently introduced additional amendments to our statute which required prime contractors to submit quarterly subcontracting reports. Under this new legislation, failure to meet the subcontracting requirements may be considered breach of contract, which could result in termination of the contract, amongst other remedies. We have also conducted best practices research to find ways to improve our compliance efforts and identify useful enforcement tools. While the District has a mandatory subcontracting requirement for construction contracts in excess of $250,000, for non-construction contracts the prime contractor is only required to subcontract 35 percent if the prime chooses to subcontract any portion of that contract. We believe this permissive requirement not only falls short of the mark, but has also had a 64 12/12/07 - COMMERCE - RES. 040977 & 070741 chilling effect on primes, as many would elect not to subcontract at all rather than be required to subcontract 35 percent to certified businesses. According to our procurement staff, several contract recipients that would entertain subcontracting out a small portion of the work, say five to ten percent, have opted to self-perform rather than hire local SBEs to complete 35 percent of the work and, therefore, receive 35 percent of the revenues. By contrast, another jurisdiction we contacted has a mandatory percent subcontracting requirement on 17 all city contracts. That city considers 18 a bid non-responsive if the bidder does 19 not provide a list of certified 20 subcontractors, and primes are prevented from substituting certified subcontractors unless the replacement is also certified and the substitution is approved by the small business office. They enforce this requirement through the 65 12/12/07 - COMMERCE - RES. 040977 & 070741 use of inspectors who actually visit work sites. In light of this research, we are considering modifying our subcontracting requirements to institute a mandatory subcontracting requirement for all contracts as well. We have made significant changes to our compliance and enforcement efforts on the private development side.
Traditionally, in virtually every development project that has taken place on District-owned property or that was funded in whole or in part with economic assistance from the District, including, for example, grants, tax increment financing, payments in lieu of taxes and tax abatements, or is otherwise government supported through industrial revenue bonds or planned unit development or zoning variances, the District has traditionally required that as a condition of receiving the government support, the private developer enter into a Memorandum of Understanding with our 66 12/12/07 - COMMERCE - RES. 040977 & 070741 department. In these MOUs, the developer agreed to use good-faith efforts or reasonable efforts to contract with and procure from local businesses for at least 35 percent of the dollar volume of the goods and services required for the development project. Beginning this year, we eliminated the old MOUs which subjected developers to no consequences if they failed to meet their goal and we have replaced them with certified business enterprise agreements. These new agreements require developers to make firm commitments to utilize local businesses rather than simply making good-faith efforts to reach a contracting goal. In addition, to ensure that private developers do not ignore their responsibilities to contract with local businesses, the new agreements include adverse consequences should the developer not meet its obligations, including financial penalties and cross default 67 12/12/07 - COMMERCE - RES. 040977 & 070741 mechanisms with other critical project agreements within the District. We have upgraded our reporting forms through which we require developers to submit quarterly reports on their progress towards achieving their contracting target. In addition, we now require the general contractors to submit payment verification forms to allow certified contractors to verify payments made to them under such subcontracts. We are working with the District's Office of the Chief Technology Officer to develop a user-friendly electronic method for certified businesses to verify such payments received on government-supported private sector projects. We anticipate that this verification and reporting tool will be used to monitor subcontracting requirements on both the public and private side. In conclusion, we applaud this Committee, the Philadelphia City Council 68 12/12/07 - COMMERCE - RES. 040977 & 070741 and the Mayor-elect Michael Nutter for taking a serious and close look at an issue critically important to the economic vitality of every major city, the growth and development of small and local businesses. Our department is working through many of the same issues as Philadelphia, strengthening our compliance and enforcement mechanisms, creating and implementing a bonding program and other financial assistance tools, streamlining a certification process, providing technical assistance and training, devising solutions to address slow payment to small businesses by city agencies, and encouraging and promoting mentor-protege programs and other teaming arrangements that allow small businesses to accelerate their growth. I will not attempt to address all of these issues today, nor do we have all of the answers, unfortunately. However, my staff and I are happy to be 69 12/12/07 - COMMERCE - RES. 040977 & 070741 of whatever assistance we can during this transition period for the City of Philadelphia and beyond. Please consider the District of Columbia a partner in this process as you work to reform and evolve your MBE program. Thank you again for the opportunity to appear before you today. This concludes my testimony, and we are happy to answer questions that the Committee may have.
Thank you for your testimony, Mr. Moses, and thank you for traveling to Philadelphia and offering your continued partnership in this process. My only question is actually a hypothetical question. Do you have deep roots in DC?
Our Mayor might 70 12/12/07 - COMMERCE - RES. 040977 & 070741 have something to say about that.
You don't have to answer that question, but feel free to contact Mayor-elect Nutter if you feel so inclined.
Are there questions from members of the Committee for this witness? Councilwoman Tasco.
I just want to say thank you so much for coming to testify and present your testimony. I'm sure that you have not obtained all the goals that you seek, but it seems like you all are on the right track to moving forward in DC. Are you getting much push-back from the contractors as you move forward to implement your program?
In short, yes, but change is often painful for those who are expected to change. The thing that allows us to push through that resistance 71 12/12/07 - COMMERCE - RES. 040977 & 070741 is the support of our Mayor and of our Deputy Mayor and, quite frankly, of our Council as well. Often times we will enter into negotiations with developers to ensure that they're compliant with our requirements and, you know, many of those entities are well connected within the city and so they make a phone call to City Hall to try to see whether or not a different standard can be set for them, and they are quickly told, No, go back to the department and make them happy. And so anyone who is tasked with changing the status quo and business as usual in the way that you're considering and that we're trying to accomplish must have support from the highest levels of government. Without that, you can't make the progress that's necessary.
Well, we know that. Let me ask you another question. You talk in your testimony 72 12/12/07 - COMMERCE - RES. 040977 & 070741 about small and local business development, small and local businesses. Do you have goals for minority participation?
We don't. We're a race and gender-neutral program, and I'm going to defer in a minute to my general counsel to speak a little bit more about the background of that, but as you all are, I'm sure, aware of the line of cases in Adoran and Crosin and others that have challenged minority set-asides throughout our country, our city decided in 1992 as a result of the O'Donnell case, which is our local case, to move to a race and gender-neutral program. That's not all bad when you consider that the District of Columbia is 60 percent minority. And so in helping small businesses, we are naturally helping minority-owned and women-owned businesses because they're present in our city. We have been pushed recently by our City Council to start tracking more demographic information 73 12/12/07 - COMMERCE - RES. 040977 & 070741 about the minorities and women, gay, lesbian, bisexual, transgender-owned companies, disabled-owned companies that are present in our database of about a thousand certified businesses right now and we plan to start implementing that tracking mechanism very shortly.
Mr. Moses, what percentage of businesses are owned by minorities?
I honestly don't know. We don't have that information available to us. I can tell you broadly that, again, out of a thousand certified businesses in our program, 60 percent of them are classified as disadvantaged business enterprises. Now, you can be disadvantaged while not being a minority or a woman depending on your narrative and that you have a net worth of less than $750,000. By and large, disadvantaged businesses are going to be minority and woman owned. So somewhere probably around 60 percent of the 1,000 74 12/12/07 - COMMERCE - RES. 040977 & 070741 businesses we have are going to be minority owned.
And do you know what percentage of city contracting goes to disadvantaged businesses?
I'm going to defer to my general counsel who can answer that question far better than I.
It's a little bit of a complicated definition, but it's basically you're economically disadvantaged if your ability to compete in the free enterprise system is impaired because of diminished opportunities to obtain capital and credit compared to others in the same line of business where the impairment is related to your status as socially disadvantaged. And you're socially disadvantaged if you have reason to believe that you've been subjected to 75 12/12/07 - COMMERCE - RES. 040977 & 070741 prejudice or bias because of your identity as a member of a group without regard to your qualities as an individual. So in most cases, you can use you're social disadvantaged as a member of a racial ethnicity or as a woman or disabled or whatever to qualify, as long as you also meet the economic requirements of being disadvantaged as well, which, as Mr. Moses mentioned, was a net worth of less than $750,000.
So if you can figure out the definition, then we'll think about certifying you as DBE.
So we require those applying for disadvantaged status to fill out a template with their net worth, in addition to write a statement explaining how their membership in a particular group has led them to have not the same opportunities for access to capital or business opportunities. And we evaluate those statements and determine whether or not they meet the 76 12/12/07 - COMMERCE - RES. 040977 & 070741 disadvantaged status.
Let me give you an example, just a real-world example. So a female, even a white female, might come in and say, I'm starting a construction company. I've been in business for three years. I've been to different banks 9 and seeking loans for my business. I was 10 in the construction industry for 15 years 11 with one of the biggest companies in 12 town. I decided to go out on my own and 13 I can't get a loan despite my background 14 and experience, et cetera. And she would 15 in that narrative explain why she was 16 disadvantaged. And so that would 17 normally qualify. Or even with a white male who might have grown up in Appalachia somewhere and been the first person to go to high school or college or what-have-you. That's how it ends up working out. And obviously with minorities and others, facing the challenges that minority businesses often face, being able to write a persuasive 77 12/12/07 - COMMERCE - RES. 040977 & 070741 narrative is not hard to do.
Yes. Are there any benefits for those who are purely local businesses, any advantages? Could you speak to them?
Absolutely. Our program has six different certification categories. Everyone must be local to be in our program, and that was a change that was instituted about a year ago. Because the District is unique as a jurisdiction and so small, we used to allow companies in Virginia and Maryland to waive into our program. That's been done away with. So you have to be headquartered in the District of Columbia, within our jurisdiction. So local is the first category. Small is another category, disadvantaged, resident owned, business located in an enterprise zone and long-time resident business; i.e., a 78 12/12/07 - COMMERCE - RES. 040977 & 070741 business that has been situated and headquartered for consecutive years in 4 the District of Columbia. All of those 5 six categories have points associated 6 with them, and so when going through the 7 procurement process on the public side, 8 those points are tabulated based on your 9 certification categories and they're 10 either applied as preference points in an 11 evaluation or as discount points if it's 12 a request for bids. So, for instance, 13 Ms. Becton has an office supply company 14 and she's not certified. I have an 15 office supply company and I'm certified, 16 and I receive 12 points as a result of my 17 certification categories. We both bid on 18 a contract with the city. She bids 19 $105,000. I bid $112,000. The city 20 would then take my 12 points, apply it to my bid, lower it to $100,000, I'm now the low bidder, I win the contract and then they pay me $112,000. So it actually -- our program provides a competitive advantage and an 79 12/12/07 - COMMERCE - RES. 040977 & 070741 economic advantage to businesses. And you can be certified as just local. You can be a very large firm that's certified as just local, because, again, we are as a district seeking to recycle as many of our dollars through our local economy as possible before they go out. We're losing, just in the retail area, a billion dollars a year in leakage to the suburbs. And so this is a program that is intended to capture more of those dollars and recycle them in our economy.
Now, did you evolve to the practice you just outlined? Is that relatively new where you have the six different categories of points?
There have been categories -- when the law was first enacted back in '92 when they switched over from being a minority and women-owned program to this race and gender-neutral program, there were only three categories. There was local, 80 12/12/07 - COMMERCE - RES. 040977 & 070741 small, disadvantaged. And I think there was also the enterprise zone location. And then over the years, additional categories have been added and the points have changed a little bit. So we now provide more preference for resident-owned businesses, because we know those businesses that are owned by DC residents, those are people who we know are paying taxes to the District and so they get additional preferences for that. The long-time resident was added a couple of years ago as well.
Did that require legislation or it was simply -- it did?
Our statute has been amended quite often, and any advice I can give to this body, if you are looking at legislative changes, try to make those as comprehensive as possible, because the lack of certainty about what the law requires is one of the main 81 12/12/07 - COMMERCE - RES. 040977 & 070741 complaints that we've gotten from the contracting community, both big and small.
Could you forward copies of that legislation to the Chair of the Committee?
All right. All of us have experienced too scenarios where the woman-owned business is really a front. So do you have caps for women-owned businesses?
We don't have caps, but in the situations where if a certified business is selected as a prime contractor, there's a requirement that that prime -- that they do a certain percentage of the work to ensure that they're not just being simply used as the pass-through. So if they win the bid as a prime contractor, they have to do 35 percent of the work themselves at least. 82 12/12/07 - COMMERCE - RES. 040977 & 070741
And so you certify whether the companies are women owned? You don't do any certification?
No. We don't -- again, the program is race and gender neutral, so anyone can apply. What we're really focused on is locality. We're trying to make certain that the only businesses that are allowed into our program are businesses that are headquartered in the District of Columbia and making the requisite contributions to the District of Columbia in terms of employing our residents and paying taxes that we think warrant their inclusion in the program. We have many women-owned businesses, many minority-owned businesses, and I would dare say the large majority of the businesses, the 83 12/12/07 - COMMERCE - RES. 040977 & 070741 thousand businesses in our program, are women and minority owned. I don't have the statistics yet to bear that out, but I'm very, very confident that that is the case.
According to your testimony, your department recently changed from a primarily certification-based organization to one that does certification and enforcement. Can you discuss the challenges that your department has had with the new enforcement power with city departments and private contractors?
Yeah. I think -- and I'm a little remiss in not praising your Controller's Office. I thought that their report was very thorough, and I was remarking to Ms. Becton while we were listening that they're the same problems wherever you go. I mean, we're dealing with the same issues in the District of Columbia. We're probably a couple steps ahead of where you are right now, but 84 12/12/07 - COMMERCE - RES. 040977 & 070741 we've come from where you are. It requires a change in culture. The comment that your Controller made about procurement professionals in the City being accustomed to working with a small group of contractors that they have confidence in, familiarity with, that's not unique to Philadelphia or any other city. I mean, we fight against that as well. You have procurement professionals whose job it is to make their customers happy, and their customers, at least in the District of Columbia, are the people who are working in the agencies, the program people who need the goods and services that they need in order to execute on the mission of their agency. They don't care who ends up providing the services. They just want them reliably, on time and within their budget. And so there is this natural tension between the procurement professionals, who are trying to get goods and services in as quickly 85 12/12/07 - COMMERCE - RES. 040977 & 070741 as possible, and our department, who are trying to make certain that there is inclusion in those procurements. So we've experienced some problems there, and there's some culture shock and we're changing that culture. I have a very good working relationship with our Chief Procurement Officer. And, again, it has to push down from the top. The people who are on the line, the staff workers need to understand that they will be measured individually and collectively by their efforts to achieve these goals and targets. One of the things that we will be recommending to our Mayor soon is that all of my colleagues, the District agency directors, be measured in their individual performance by how their agencies comply with their contracting goals. And so bonuses and other things should be tied to, at least in part, to how they achieve their goals in these areas. So I think you have to have real 86 12/12/07 - COMMERCE - RES. 040977 & 070741 metrics to measure people by, both individually and collectively.
How much push-back did you get on requiring that you use city residents, businesses that are located in the city, from the other --
It's interesting, there were a number of companies that had waived into the program from Virginia and Maryland, but not that many. I mean, DC is a pretty provincial town, and so I get much more comments from local businesses, especially longstanding businesses who feel like they see a $9 billion government and don't feel like as much of that money is making it into the hands of local businesses as these businesses in Virginia or Maryland. So we are encouraged to be the watchdog and to be the cop on the beat, if you will, with respect to protecting the program from businesses that are located outside the city. 87 12/12/07 - COMMERCE - RES. 040977 & 070741 So that hasn't been the real push-back. Most of the push-back has come from the private sector developers who receive economic assistance or land from our city and that are accustomed to using who they want and are certainly not accustomed to us assessing financial penalties if they fall short. That has been the biggest resistance that we've received. But to the credit of our Administration, we've been given all of the leeway to continue to push ahead with instituting those changes.
Have you found that you've increased the number of businesses moving into the city so they can do business? Particularly some of the businesses that were in other cities and doing business in DC, have any of them relocated to DC?
There have been some and we're starting to see a trickle of more. One of the problems there is that our city is a very expensive city to 88 12/12/07 - COMMERCE - RES. 040977 & 070741 live in as well as to locate your business in. We've had a real state boom over the last ten years that's unprecedented and one of the hottest real estate markets in the country. And so it's an expensive place to be. So that counter-balances, I think, the number of businesses that would move in. One of the things that we've done and I think is encouraging businesses to move into the city is that we started forecasting on the construction and development side the vast opportunities available to these businesses. We're in the middle of $60 billion worth of spending on construction and development in our city, and just back of the envelope, 35 percent of that number is going to have to go to these certified businesses. What we've said to -- we had an expo recently to forecast these numbers, and what we said to those businesses was, Look at the size of the pie that's available to you if you're in 89 12/12/07 - COMMERCE - RES. 040977 & 070741 this program. That should be enough to want you -- to motivate you to move into the city and try to get a piece of it. So we're starting to see more of that, and we're also encouraging larger businesses outside of the city to partner with, to invest in local businesses that will be headquartered in the city as another opportunity for them to break into the marketplace.
What department within DC oversees the construction aspect of what's going on in terms of -- and also the inclusion of minorities and women on construction sites? You know what we're dealing with here in Philadelphia relative to our Convention Center in our effort to make sure that the workforce is diverse. Are your workers diverse in DC on the projects that go up?
They are. Probably not as diverse as we'd like them to be. I have a colleague who runs our 90 12/12/07 - COMMERCE - RES. 040977 & 070741 Department of Employment Services that's responsible for the workforce development efforts of the city. We have an agreement called the First Source Agreement that requires that on any government-supported project, that 51 percent of the new hires on those projects must be DC residents. And so the Department of Employment Services is tasked with overseeing the implementation and oversight of that law. We don't have a construction group in the city. The Procurement Office handles procurement for all agencies that have capital budget. Maybe similar to your Convention Center, we have a -- we're about to spend $3 billion on school modernization in the District of Columbia over the next 10 to 15 years, and the Mayor has recently created an Office of Public Facilities Management for the school system to manage that budget, and they set a 50 percent goal for inclusion of certified businesses on 91 12/12/07 - COMMERCE - RES. 040977 & 070741 all of that school work. We just built a $600 million baseball stadium. We're at 53 percent participation for certified businesses on that project. So we're certainly making great strides, but there is not one consolidated construction group in the city, at least not yet.
I failed to note that Councilman DiCicco is also present. Are there any more questions for this witness? (No response.)
Our next 92 12/12/07 - COMMERCE - RES. 040977 & 070741 witness is Beverly Harper.
Good morning. How are you? Please state your name for the record and proceed.
Good morning, Chairman, Councilpeople. Thank you for the opportunity to present testimony on my history and experiences as a minority business based in Philadelphia for 38 years, my knowledge of the history of the MBEC and recent insult and disrespect inflicted upon me by the current Minority Business Enterprise Council staff, and, finally, some recommendations about how this government can truly assist minority firms. , a 93 12/12/07 - COMMERCE - RES. 040977 & 070741 marketing services and communications consulting firm I founded in 1969. We have continuously operated in Philadelphia, paying hundreds of thousands of dollars in wages and taxes to hundreds of employees. We have had hundreds of prime and subcontracts working for eight federal agencies, six state departments and over the years several City departments and quasi-public agencies. We have developed and implemented social marketing campaigns, customized training programs, large multi-year community relations projects, and many focus groups and research assignments. In the early '80s I helped to found and became the first and only President of a minority business action group called the Brain Trust. Our goal was to get the City of Philadelphia to pass what was called at that time set-aside legislation that would guarantee minorities and women a share of 94 12/12/07 - COMMERCE - RES. 040977 & 070741 City contracts. Working with the late Lucien Blackwell and John Anderson, among others, we were successful, not only in getting the legislation passed but also helping to organize the unanimous vote to override Mayor Bill Green's veto. This occurrence was a glorious day in City Council. Chapter 17-500 of The Philadelphia Code became law, creating the Minority Business Enterprise Council. I became one of the first businesses certified. I believe in a certification process. , has been and is currently certified in numerous jurisdictions, many of them for years. In February of this year, both my Unified and City certifications expired. Prior to February, late last year, I received and responded to a letter from the MBEC asking for information. I had an Affidavit of No 25 Change notarized and sent to the City. 95 12/12/07 - COMMERCE - RES. 040977 & 070741 In January I received another letter saying that my certifications were in jeopardy. I called and asked what else was required and was told that I would receive a call back. None came. A bit of information: The Unified Certification Program is an agreement that took at least four years to be finalized. Its purpose was to reduce the paperwork required from minority firms. The agencies involved are PennDOT, SEPTA, Allegheny County, the Port Authority of Allegheny County and the City of Philadelphia. Philadelphia is the only one of these that also requires an additional certification, both requiring the exact same level of information and documentation. What a shameful waste of resources. It is a mystery to me why the City needs two certifications. By February of this year, I was worried about my Unified Certification and after speaking to PennDOT and SEPTA, 96 12/12/07 - COMMERCE - RES. 040977 & 070741 I requested that my files be transferred from the MBEC to SEPTA, where I was sure I would get a response. A request was made by SEPTA for my files. In an unusual occurrence, the files were not transferred. I was asked by SEPTA to submit my complete recertification package, which I did. SEPTA recertified my firm within three weeks, including conducting a site visit. I still had to submit a complete recertification application to the City, which I did on July the 11th, after months of frustrating dealings with the MBEC. In August I was asked to bid with two teams on different projects, one with the City Planning Commission and one with PIDC. I called the MBEC in late August and informed them of these two projects. I was told that my paperwork had passed the first level of review and was on a supervisor's desk.
I called the supervisor and was told that the MBEC 97 12/12/07 - COMMERCE - RES. 040977 & 070741 could take three months to complete the certification and that there was nothing that could be done to expedite the process. Shortly after that, I received a call from one of the prime contractors I had bid with, saying that they had received a call from the MBEC saying that I did not have a current certification and they would have to find a substitution for my firm. MBEC never informed the prime that my application was in process, that I had been certified for years and that nothing about my firm's ownership or management had changed. I was outraged, hurt and incredulous. During this time, I held a current Pennsylvania Unified Certification, certifications from the Maryland Department of Transportation and New Jersey Transit. I again called MBEC and asked if I could send copies of these other certifications. I was told that if 98 12/12/07 - COMMERCE - RES. 040977 & 070741 I submitted these documents, the process would start all over again and the wait would be longer. I could not believe what was happening. If the MBEC could do this to me, how many other legitimate firms have been so devastated by this incompetence that they went elsewhere, to Philadelphia's great loss? I wrote a letter to Carolyn Nichols, Director of the MBEC, and received no response, and in a rare move, I sent copies of the letter to several elected officials. None could believe what was happening. All responded by calling me and the MBEC. The MBEC provided inaccurate and misleading information to the elected officials, telling one that they were waiting for additional information from me. They never asked for anything additional. They continually told different elected officials that the certification letter would be mailed in two weeks. After that time expired, they said next week, and 99 12/12/07 - COMMERCE - RES. 040977 & 070741 then that time expired. Finally, on October 1, 2007, I received my certification. I must say that I'm puzzled by the actions of the MBEC, as they are an entity whose mission is assisting minority enterprises and they have recertified me numerous times. We have bid on hundreds of projects with dozens of engineering and planning firms, multiple times with most. In my 38 years of business and more than years of 14 being certified by dozens of state, 15 county and city agencies, including the 16 MBEC, I have never experienced anything 17 like this. In the past when an agency 18 has been slow to process a 19 recertification application, they have at 20 least confirmed to the prime that it was in process. Ironically, we were on a team that was awarded a contract from another City department at this same time. Since this particular department knew of my 100 12/12/07 - COMMERCE - RES. 040977 & 070741 firm and knew of many problems with the MBEC, they believed me when I said my certification was imminent. I was able to stay on this team. The bottom line for me is that I lost a $250,000 opportunity. Because of the MBEC, the relationship I had worked for years to establish with this engineering firm is irrevocably damaged. They think that they did not get the project because they had to submit a less qualified firm for Portfolio Associates. What can be done? One, take all responsibility away from the MBEC, create a program that works and place it in the Mayor's Office. Two, develop a minority business strategy for the City that will increase the number and size of minority businesses. Three, work with the new Administration to develop real accountability for making sure that minority firms have real opportunities to 101 12/12/07 - COMMERCE - RES. 040977 & 070741 do business with the public and private sectors in this City. Four, require annual reports on progress that can be documented from all City departments and agencies, authorities, quasi-agencies and all who do business with the City.
Five, solicit periodic reports from minority businesses about how the City is doing in providing opportunities and business. Six, find a way to show public recognition of small businesses such as Portfolio Associates. We have hired more people and paid more taxes than many of the newcomers who get tax breaks and recognition far beyond their staying power. Seven, pay attention. Small businesses are the new engine of this economy. I stay in business in this city because I love what I do and I love the City. It might have been easier to do 102 12/12/07 - COMMERCE - RES. 040977 & 070741 business somewhere else, but I have made a difference here, professionally and personally. I am President of the Board of Directors of Philadanco. I chair the Board of the Painted Bride Art Center. I am a former Chair of the Board of the Enterprise Center. I co-chair an organization called PenTrans, Pennsylvanians for Transportation Solutions. I am President of the Board of Governors of the Philly Ad Club and I am on the Board of the Philadelphia Orchestra Association. I believe in giving back. Thank you for this opportunity. I look forward to answering any questions you may have.
Thank you for your testimony, Ms. Harper. Councilwoman Tasco.
Thank you so much, Ms. Harper, for coming in to testify. We worked to share and shared your story and your trials and 103 12/12/07 - COMMERCE - RES. 040977 & 070741 tribulations with MBEC, and I have to say that I know that you're angry, because otherwise you might not be here, but you care and you just have been done an injustice, and I have to apologize for that.
It is my understanding that you conduct business in other cities. Can you describe your experience in other cities as compared to Philadelphia?
Yes. We are certified in other cities and other states. When my recertification is coming up for New Jersey Transit, about two months before the certification is up, I get a phone call asking me whether anything has changed and telling me whether or not they have changed any of their policies or procedures, and they ask me also if I am going to submit for 104 12/12/07 - COMMERCE - RES. 040977 & 070741 recertification. They note in their file 3 that they had that conversation with me. The same thing happens at PennDOT when I talked to their MBEC -- when I talked to their DBE office. They note in the file every time I call them and so that there is a record that I have reached out. We recently did a project in Maryland, and that was through the Maryland Department of Transportation. Our recertification was in process when we were asked to bid on a project as a subcontractor. Their office informed the prime that my certification was in process and that they did not anticipate any problems at all because I had been certified with them for a long period of time. So, yes, I get treated with a lot greater respect in other jurisdictions than I do here in Philadelphia.
When you 105 12/12/07 - COMMERCE - RES. 040977 & 070741 are seeking recertification, I know -- I don't know, but I understand that a lot of information is required when you're getting your initial certification and a lot of businesses don't want to go through that process, and we've been told that dealing with the MBEC office, they're not really confident that their information will be held in confidentiality.
I am very worried about that and for several reasons. One, over the years, several times they have told me that they have lost my package and I had to resubmit it again. Now, the same stock certificates that I submitted to them back in the '80s are the same ones that they still require when I get recertification today. So the amount of paperwork that has been submitted to the MBEC over and over and over again is, as I said, a shameful waste of resources.
Did they find your package? 106 12/12/07 - COMMERCE - RES. 040977 & 070741
No. I mean, then we were doing a project for the Streets Department where we were looking at the recycling that various City offices and buildings do and I have photographs where out of one of the offices there were boxes put out on the sidewalk of people's files. So, of course, my great fear is that somebody goes through and, you know, cleans out a file and all of my corporate records are sitting out on the sidewalk someplace. So, no, I don't have any confidence that those records are confidential.
Okay. What steps do you -- well, you gave us some ideas for change for the MBEC office. And I do want to cite for the record that we had another contractor with the City call us because their 107 12/12/07 - COMMERCE - RES. 040977 & 070741 certification was being held up, and it just seemed to be very odd that we were getting these phone calls at the time about -- and I know both of you very well. I remember when you went into business. And this other gentleman has been in business and has been known -- if you work and live in Philadelphia, you know your minority-owned businesses. Do you know what the purpose of the recertification is?
Well, I think that when you submit -- there are a couple of things that you do. I think annually you have to submit an Affidavit of No Change that you get notarized, and then when your certification actually expires, you have to submit a new package. It seems to me that if you have submitted an Affidavit of No Change, which is essentially a one- or two-page document that you get notarized, I don't understand why you have to submit -- if you're saying that nothing has changed, 108 12/12/07 - COMMERCE - RES. 040977 & 070741 then why do you have to give them two inches of paper again and again and again?
Yes. They're certifying that the ownership and management of the company has not changed. They're certifying that you do not exceed the income limits. And all of that can be a part of the Affidavit of No 17 Change. You're saying that nothing has changed. So to me, it's a waste of staff resources for them to have to plow through all of that paperwork again when it's -- I mean, I have a whole file of just the papers that we give them over and over and over again, and then I also keep a copy of exactly what I send them each time. And I understand that most of 109 12/12/07 - COMMERCE - RES. 040977 & 070741 the times when certifications are slow, it's because some of the paperwork isn't there, but as many times as I've been certified in so many jurisdictions, I know exactly all of the paperwork that needs to be there, and it's always there.
You have dealt with the MBEC office for many years. Is this the first time you've had this problem in the last year to this extent?
Previously certifications have been slow, but when they were slow, I could get MBEC to send a letter to the prime or MBEC would tell me to put their person's name, whether it was Jim Roundtree or Marlon Hamilton, put their name at the bottom of my certification letter and their telephone number and saying that my certification was in process, and that was helpful. If it was slow, that was fine, it didn't hurt me. What MBEC did this year hurt me. I mean, it hurt my business, to say 110 12/12/07 - COMMERCE - RES. 040977 & 070741 nothing of how I feel personally, but I lost a $250,000 opportunity and I lost a great relationship with a firm who thinks that I was responsible for them not getting a contract.
Well, again, thank you for coming in to testify. As we move forward, we take some of the recommendations from the Controller's Office and from DC and hopefully that the new Administration will try and come up with a better program.
Thank you. The only comment I would add is, the record should reflect that you were one of the authors of the initial legislation of the bill that ultimately created that office, and for now, a couple decades later, to be in a 111 12/12/07 - COMMERCE - RES. 040977 & 070741 circumstance where the office and, therefore, the Administration haven't figured out how to treat longstanding certified MBEs differently from those who are just showing up at the door in many ways is a disgrace. Thank you for your testimony.
Yes. Good morning. My name is Judith Robinson. I'm here today to testify on Bill No. 18 040977 and really 070741. I want to say thank you to Mr. Butkovitz and his office for a very comprehensive report, but I feel like deja vu. I am a business owner, a very small business owner, and I've never taken the time to get certified. I thought it was disrespectful to my 112 12/12/07 - COMMERCE - RES. 040977 & 070741 ancestors to certify myself sort of like in a ghetto of business. This is required, I know, to get the big contracts, but after hearing some of the stories that you just heard, I knew it was really not worth my time for a business in real estate where you can go out to the people and get business and you don't have to go through these governmental processes to do business. This has been going on with MBEC for over 30 years, as MBEC has been a patronage haven of a lot of African-American folks that have sat around for over 30 years while business people that did not have -- that have to earn a paycheck or make the money have not gotten contracts. So I did not waste my time with that. But I say it's like deja vu in that last time we were here there was an illusion of inclusion. There have been many studies and reports completed and they always tell us the same thing that 113 12/12/07 - COMMERCE - RES. 040977 & 070741 this great report has told us presently, that we're not getting business from City contracts. Minority representation in the City is 55 percent and we're getting less than percent. Now, that's 7 minorities, which includes 8 African-Americans and all others, while 9 we vote for our elected officials, put 10 them in office and we continue with the 11 same. 12 So I want to talk about enforcement, leverage and political will. I heard here today that non-profits get a substantial amount of City contracts. That's an area where our City Council has much leverage, and I'm requesting that you use some of your leverage. Housing agencies, non-profits come before this organization and they request funding for various projects. There is no 22 responsibility for them to be inclusive. We can deal with that very quickly as you negotiate to give them funding for various projects. 114 12/12/07 - COMMERCE - RES. 040977 & 070741 Recently, this body of City Council voted to regarding an issue where the Boy Scouts, the cradle of liberty, are using a building on the Parkway. You all use your leverage, without having any public hearings, without any opportunity for public input. You use your leverage to force this agency that you all are claiming is discriminating against folks. Well, all of these issues that we're talking about are about discrimination. I would like to know how you did that process with the Boy Scouts and that whole agenda that's being pushed. I would like you to use the same power, the leverage, enforcement. And I know it's a smaller issue, but you did it. I don't know how it was done, but you did it. You have the same kind of clawback powers as it relates to these contracts. So I'm just here today to ask that you use the same kind of political will that you used in that particular 115 12/12/07 - COMMERCE - RES. 040977 & 070741 case. I'm asking that you use your negotiating skills prior to demolition, prior to projects moving forward, such as the Convention Center. I'm asking that you use your political will to move us out of this mucky mire, this nonsense that we go through over and over again. I have only been coming to City Council for about ten years now, and each year almost around about this time we have these hearings. I'm asking you all to read the reports, see where your leverage is as it relates to this process and have the guts to stand up and do what is necessary to move us forward. Now, we're coming with a new Administration, and I'm very optimistic that we can do this, but I know it's going to take political will.
I am a voter, a business owner, taxpayer, homeowner, all that. I will support you all in any way that I can so that you can have the political will, the guts to move us in the 21st century with dignity and 116 12/12/07 - COMMERCE - RES. 040977 & 070741 respect. Our ancestors are calling us to do that. Thank you very much.
Thank you for your testimony. Is there anyone else to testify on any of these resolutions? (No response.)
Seeing none, the hearing of these resolutions is concluded. Thank you. (Committee on Commerce and Economic Development adjourned at 12:15 p.m.) - - - 117 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on December 12, 2007, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)