In all my years in the construction industry, I have only worked with two disadvantaged business enterprises (DBEs) that have survived more than five years. That’s bad for the DBEs and for the industry, but there are ways to improve the programs that have to do with cash flow, mentoring and making sure we are working with real DBEs. These changes would require a more active role by the public works agencies than they play now.
First, some basics. One purpose of DBE programs is to support the development and growth of business enterprises that are disadvantaged by a perceived hindrance to market access because they are owned and operated by a “Protected Class”; i.e., a minority business enterprise (MBE) or woman-owned business enterprise (WBE).
A company can also be part of a program because it is an Emerging Small Business Enterprise (ESBE), typically defined as a new business whose sales are below a standard set for an industry sector or segment. This ESBE classification is normally only available to businesses for a limited time and is lost once sales hit a predetermined level.
DBE programs benefit communities by providing opportunities for those who may have limited access to operating capital, market opportunities and—most importantly—opportunities to establish and grow new businesses that should create new employment opportunities.
But in the construction industry, the administration of DBE programs has a very real and often detrimental effect on DBEs.
For example, contractors are expected to meet DBE participation requirements while submitting the lowest bid.
Additionally, just like other businesses working with large bureaucratic projects, DBE subcontractors and material suppliers are often subject to slow pay and long delays to resolve changes.
The term DBE intimates that the businesses may need some assistance to get established. The most common issue legitimate DBEs face is a lack of operating capital, followed closely by lack of experience in business management.
In my history of working with a number and variety of DBEs, I’ve thought that so few survive, and that the low rate of success indicates a failure on the part of the programs. When DBEs fail, no one wins, and available legitimate qualified DBEs become scarcer.
To successfully accomplish the goals and intended benefits of the DBE program, we need to change the way the programs are administered.
Each public program or project owner designating use of DBEs should be required to contract with DBEs directly and provide special payment options for the DBEs to accommodate limited cash flow as well as special monthly meetings to resolve changes and payment issues in a timely manner. Requiring owners to contract DBEs directly should improve DBE administration.
Every DBE project owner should provide, as a requirement to access the DBE set-asides, that DBEs enroll in mandatory mentoring services at no cost to the DBEs. The mentors would provide the business acumen needed by the DBE owners for long-term success. Through their active involvement with DBEs on the project, the mentors would also serve as a deterrent to fraud and cheating.
Competing on a Level Playing Field
Once a WBE or MBE has reached a predetermined level of success and has effectively overcome the disadvantages of its owner’s “Protected Class,” it should be able to compete on a level playing field with its competitors. Businesses “graduating” the program would be the pinnacle of success for the DBE Program. This would also make room for new MWBEs. Currently only ESBEs are required to grow up and get out on their own.
If such changes were implemented, the DBE program could actually accomplish its mission while significantly reducing the temptation to find work-arounds for compliance. There could be some added cost for the mentors. The reduction or elimination of fraud and cheating should result in real savings. The owner paying for DBEs directly would also eliminate added markup costs. These savings should easily offset the cost of mentors.
We as an industry should actively support needed improvements of and modifications to these DBE programs by working with the appropriate governmental powers. These programs need to be modified to make them more functional, manageable and successful. Let’s all contact our federal and state representatives to offer solutions such as these so the DBE program can create real successes, new stronger businesses, new jobs and opportunities, as it was intended to do.
Photo by Padraic Hoselton.
Neil O’Connor is director of labor relations and senior project manager for Western Partitions Inc., based in Tigard, Ore. He can be reached at neil.o’firstname.lastname@example.org