The Importance of Contract Preferences in Government Funded Projects

The Importance of Contract Preferences in Government Funded Projects
 
By: Irene Schild Caminer
 
INTRODUCTION
 
Race and gender-based discrimination has throughout the history of this country been pervasive at every level of government, especially when seeking contracts. There still exists rampant discriminatory attitudes, negative perceptions of competence and wage differences by gender and race (even within the Trades). 
 
The Minority, Women, Disabled and Veteran Business Enterprise (MBE/WBE/DBE/VBE) certification programs were created to “level the playing field” by reducing race and gender-based barriers to entry into the workforce and equal opportunities. In essence, these certifications and processes go against the historical procurement laws, rules and regulations as they seek to favor MBE/WBE/DBE/VBE owners.  With certification programs, government agencies create more competition resulting in a stronger, viable workforce and projects. Typically, there are some differences in the requirements between local, state and federal agencies but there is one goal: to create more opportunity for MBE/WBE/DBE/VBE businesses to participate in projects, programs and services.  Most new businesses fail, plain and simple.
 
According to the U.S. Bureau of Labor Statistics (BLS) (Feb. 28, 2020) approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10. Only 25% of new businesses make it to 15 years or more. Given these statistics, governments have created these complicated, lengthy and detailed processes.  However, although the rules seem (and can be) daunting, once certified the business opportunities are invaluable.  This article focuses primarily on the City of Chicago’s Professional Declaration of Eligibility process, the requirements for certification of a business are similar between City, County, State and federal procedures. 
 
CERTIFICATION
 
The applicant business seeking to be certified as a MBE/WBE/DBE/VBE has the burden of demonstrating, that more likely than not, it meets the eligibility requirements of 1) at least 51% ownership and control, and 2) is a viable and independently run business.  The City makes its decision based upon its review of the following categories of business documents provided by the applicant: 
 
  • Fiscal Control-financial records for at least three previous years
  • Ownership records-incorporation or partnership documents, resumes, capital contributions, minutes of board meetings or stockholder meetings, interviews, title to equipment and vehicles and income tax returns. 
  • Proof of ethnicity- birth certificate, naturalization, permanent residency, passport or driver’s license
  • Expertise- resumes of principals, work history, on-site interview and evidence of contract negotiation and execution.
  • Disability and veteran status-honorable discharge and/or other documentation of disability,if applicable.
 
Under the federal guidelines a business may be certified as a Disadvantaged Business Enterprise (DBE) based upon ethnicity, gender, disability and veteran status.  In addition to the above criteria, to be federally certified as a DBE net worth is taken into consideration.
 
The evaluation includes a 3-year lookback of the business and personal records of the owner(s) including income taxes, ownership and how expertise was established.The applicant may provide as many as 22 different types of records to the City for review.
And, if the business performs construction services, there are even more documents that must be provided to the City. Obtaining certification can be daunting, complicated and wearing on the business owner seeking certification.
 
My Experience as a Woman owned Business Enterprise
 
In January 2018, I launched my own law firm.  As a woman owned businessit was recommended that I seek WBE certification with the City of Chicago.  In April, I completed the forms, uploaded the myriad of documents and then waited.  My certification application was rather simple because my business was young and I did not purchase it from another company but rather started it myself.  I had no employees, few contracts and no loans, leases or business tax returns. However, the City, in accordance with itsrules and regulations, had to ensure that my business was (is) a legitimate and viablebusiness.  Why legitimate and viable?  Because the City has an interest in ensuring itscontracts can becompleted in a timely manner and within budget while meeting all City requirements, including insurance.  
By mid-July 2018, my business was certified by the City of Chicago as a WBE. This was a relatively short turn around because of my business’s unique factors.  However, each business is different. I have heard from other business owners that the certification process can take many months, even more than a year until a decision is made. Anecdotal conversations with City staff further indicate that a reason certification takes so long is because of the volume of documents, the time involved and the complexity of the process.  
 
Professional Declaration of Eligibility
 
How does a small minority or woman business owner (M/WBE) (non-construction) obtain certification in a timely, efficient manner?  The City of Chicago has a process for certification that can reduce the stress and effort on a small or new non-construction business.   Businesses can work with an attorney or accountant early in the process, prior tothe application beingsubmitted to ensure the business meets the City’s requirements.  The accountant or lawyer, under the City’s Rules and Regulations, may provide a “Professional Declaration of Eligibility” for the non-construction business seeking M/WBE certification.  Under this process the professional reviews the documents, conducts the interview, visits the business and then certifies that the business is eligible for MBE or WBE certification, only.  By utilizing the services of a professional the application and review time may be significantly reduced allowing the business owner to focus on the business and its development.  
The MBE or WBE certification is valid for 5 years so long as the business submits an annual no-change affidavit.  The annual no-change affidavit is one page long notifying the City there are no significant changes to the business within the last year that would impact its certification.
 
Benefits of Certification 
 
All or most City procurement contracts require a minimum percentage of sub-contractor participation by certified MBE/WBE/DBE/VBE businesses.  These are minimums and not maximums, floors not ceilings.  In addition, the City offers various services to assist small and mid-size businesses in entering the arena of government procurement.  The City often seeks contracts for goods and services in smaller dollar amounts so businesses will succeed.  Further, there are Target Market contracting opportunities where only MBE/WBE/DBE/VBE businesses can bid on services or projects. The goal for the City is to have its certified vendors graduate out of the program because they are financially successful.
If you or your business or organization needs assistance with obtaining certification, setting up and managing a certification process or analyzing the effectiveness of a certification program, please contact Irene@caminerlaw.com
 
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