Contractors Pressed to Shop Subcontractor Bids as MnDOT Misses Minority Goal Again

warning-lites-wkr-2A new MnDOT report shows the agency has again failed to reach its goal for minority and women-owned business participation on transportation projects for at least the tenth year in a row.

This despite spending an estimated $10 million of taxpayer funds on training and recruitment to pave the way for the federally mandated Disadvantaged Business Enterprise program since 2007.

The DBE program requires states to set goals for companies “owned and controlled by socially and economically disadvantaged individuals” for federally-funded MnDOT projects.

But the latest numbers indicate DBE-qualified firms landed 8.5 percent of federally funded road construction contracts statewide in fiscal year 2016, well shy of MnDOT’s 11.7 percent target.

Even so, the agency continues to give itself a pass.

“The report shows an increase in DBE participation from 2015,” said Kim Collins, Director of MnDOT’s Office of Civil Rights in a December 8 news release. “The Office of Civil Rights and the agency will continue working with public and private sector stakeholders to meet the goal.“

But MnDOT’s management of the DBE program gets no free ride from industry. Nearly 80 percent of Associated General Contractors of Minnesota members view DBE compliance negatively, while 76 percent view mandated hiring goals negatively in a recently released 2016 survey.warning-lites-dbe-paperwk

These negative views stem from a shortage of DBE-certified companies, widely varying DBE goals across projects and contracts replete with dozens of pages of race and gender-related rules. These factors combine to make DBE a top concern year after year, while also increasing the cost of transportation projects. Companies must accept a certain number of bids from DBE firms, regardless of whether it costs taxpayers more.

“They call it a goal, but basically what it’s become is a quota,” said Scott Sayer, President and General Manager of Warning Lites of Minnesota, a 60 year old Twin Cities traffic control company.

Industry leaders also raise concerns over the integrity of the bidding process, which depends on bids being confidential and final. To meet their DBE numbers, contractors say MnDOT increasingly pressures them to engage in what borders on bid-shopping, undermining an ethical firewall in place for decades. Bid-shopping occurs when a construction company lets a subcontractor change a bid in order to lower its price and get the job.

“Bid shopping is unethical,” said Tom McCrossan, President of C.S. McCrossan, a major Twin Cities construction company. “When you bid work, it’s your best guess at that point in time of where you should be at. Otherwise, when does it stop?”

dbe-logoMnDOT specifically instructs contractors to negotiate lower prices with DBE subcontractors whose bids come in too high. But the agency draws a distinction between negotiating and bid-shopping.

“The unethical, or perhaps illegal, bid shopping occurs when a contractor takes a bid by one subcontractor and discloses the bid price to another potential subcontractor in the same trade to obtain a lower bid,” a MnDOT Office of Civil Rights panel told Warning Lites of Minnesota, a traffic safety equipment supplier, at an April 2016 appeals hearing. “…Prime contractors can negotiate in good faith without bid shopping. Negotiations can take place without disclosing the prices of other bidders.”

Warning Lites appealed the loss of a $1 million project on which it was the lowest bidder. The North Minneapolis company was rejected for failing to meet the higher than usual 15.9 percent DBE goal. But it became apparent during the hearing things could have turned out differently if Warning Lites had renegotiated bids from disadvantaged companies.

“Without saying you should shop the bids, that’s basically what they were telling us,” said Warning Lites President Scott Sayer. “Somebody could actually call you on that and then you’re the one that’s going to get in trouble for it. You get a bad reputation in the industry if you start shopping numbers.”

Scott Sayer, President of Warning Lites of MN, contends DBE goals in practice equate to quotas.

In addition, construction companies contend the practice opens them up to demands to renegotiate with non-DBE suppliers. Blurring the lines between bid shopping and negotiating results in other unintended consequences, shielding minority and female-owned firms from building up their companies by competing in the marketplace, according to Twin Cities construction industry attorney Dean Thomson.

“Irrespective of its corrosive effect on the competitive bidding process, bid shopping also undercuts the purpose of the DBE program, which is to encourage opportunities and growth for DBE subcontractors,” Thomson argued in a critical legal analysis of DBE regulations.

Some DBE companies also expressed frustration with the program in a 2016 MnDOT report, which flagged bid-shopping as a “barrier” in some cases.

“Bid shopping is linked to creating general distrust between DBEs and prime contractors,” the report states. “…Some DBEs felt the real issue with bid shopping is the lack of opportunity to learn from the prime (contractor).”

The MnDOT report also points out confusion among participants over the program’s ultimate goal, namely helping disadvantaged companies become so successful they leave the program.

“Generally, respondents were unclear about the long-term goal of the DBE program, since graduation occurs so infrequently,” the MnDOT report concludes. “…Respondents stated that the lack of graduates raises questions about the program’s credibility and, in turn, the credibility of DBEs as a whole.”