Georgia Tech Procurement Assistance Center

Why are DBEs MIA? Overcoming the disadvantaged business enterprise shortage

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Since the early 1960s, even before the passage of the Civil Rights Act of 1964, the U.S. government has been trying to find ways to give disadvantaged business enterprises (DBEs) a piece of the gigantic federal contract pie — almost $450 billion in 2014. Also commonly called WBEs (women-owned) and MBEs (minority-owned), they all refer to businesses, which, by virtue of ownership, historically have been shut out of federal contracting opportunities.

DBE ownership and controlState and federal agencies typically set required DBE participation goals at 5%-10% and up, meaning that there are tens of billions of federal dollars up for grabs. In 2015, federal construction spending, according to the Associated General Contractors of America, will total almost $106 billion, resulting in a potential $10 billion payoff for firms certified as disadvantaged.

Of course there is, for some, the temptation to commit fraud in order to gain access to these lucrative contracts. Three Pennsylvania steel company executives pleaded guilty in October to setting up a sham DBE in order to win nearly $19 million in U.S. Department of Transportation and Pennsylvania Department of Transportation contracts set aside for disadvantaged businesses.

With all that money at stake, one would think minority and women-owned businesses are filling federal offices, demanding to be certified and eager to participate. So why aren’t they? Construction industry experts say there is a shortage of certified DBEs, and that means it’s getting harder to meet federal agency DBE participation goals.

Keep reading this article at: http://www.constructiondive.com/news/why-are-dbes-mia-overcoming-the-disadvantaged-business-enterprise-shortage/408432/

The top 3 biggest mistakes small and minority firms make in government contracting

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The Unites States federal government is the world’s largest single buyer of products and services spending billions of dollars annually. And when the federal market procurement dollars are combined with State and local government agencies procurements then the overall government market is an ideal market for minority businesses to generate revenue and grow. This is especially the case with our tax dollars are involved and given the goals that government agencies have in making contract awards to small and minority businesses.

Many minority firms have enjoyed eating at the government procurement trough, but based on government agency data from all levels, a substantial number of minority firms are unsuccessful in government procurement and miss in winning contract awards. There are many cited causes for this contract award gap, but from my many years of being successful in winning government contracts and from my observations, below are the three biggest mistakes that minority firms make in government contracting.

  • Mistake #1: Not conducting research and learning about how to do business with a targeted government agency.
  • Mistake #2: Failing to attend pre-bid and pre-proposal meetings to build relationships.
  • Mistake #3: Not consistently marketing and staying top of mind with agency procurement staff.

Keep reading this article at: http://www.huffingtonpost.com/helen-callier/the-top-three-biggest-mis_b_5515912.html

Chicago construction firm pays $12 million to settle DBE contract fraud claims

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A Chicago-based construction company will pay the United States and the State of Illinois $12 million to resolve allegations of fraud on government programs designed to benefit women- and minority-owned sub-contractors under the terms of a civil settlement agreement announced May 1, 2014. The contractor, James McHugh Construction Co., Inc., allegedly failed to abide by federal and state requirements for the participation of disadvantaged business enterprises (DBEs) in contracts to perform seven construction projects involving roads, highways, and transit lines, funded by the federal and state governments between 2004 and 2011.

The federal and state governments claimed that McHugh violated the federal and Illinois False Claims Acts by making false statements and claims for payment to government agencies regarding McHugh’s compliance with federal and state requirements to include DBEs in the construction projects.

As a result of the $12 million settlement, the federal government will receive $7.2 million and the state government will receive $4.8 million. In a separate administrative settlement and compliance agreement, McHugh agreed to implement a corporate compliance program, appoint a compliance officer, and be subject to an independent monitor for three years, in exchange for the federal, state, and City of Chicago transportation agencies and contracting authorities’ agreement not to bar McHugh from future government contracts. This allows McHugh to continue pursuing and performing public works projects while ensuring that it remains compliant with DBE regulations.

“It was more costly in the long run for McHugh to avoid its obligations to hire women and minority-owned businesses than it would have been simply to comply with the requirements and retain disadvantaged businesses to actually participate in these public construction projects,” said Zachary T. Fardon, United States Attorney for the Northern District of Illinois. “It’s important that McHugh and other companies realize that compliance with these requirements is both a good business decision and the right thing to do,” he added.

The investigation revealed that McHugh Construction falsely used subcontractors to help secure bids for major public construction projects. Specifically, the company used women-owned small businesses to submit false claims to the state and federal governments for millions of dollars when in fact, those businesses never completed the level of work required by law.

The settlement arose from a lawsuit that was filed in 2008 by Ryan Keiser, who was a project manager for Perdel Contracting Corp. and Accurate Steel Installers, Inc. (ASI), at three of the McHugh construction sites. The lawsuit was filed under the qui tam or whistleblower provisions of the federal and state False Claims Acts.

The federal and state statutes permit private individuals to sue for “false claims” on behalf of the government and to share in any recovery. Mr. Keiser will receive 17 percent of the $12 million settlement or $2,040,000 ― $1,224,000 from the United States share, and $816,000 from Illinois’ portion of the settlement.

The federal and state governments contended that in bids for these contacts, in the final contracts, and in claims for payment, McHugh falsely stated that Perdel and ASI, which were both certified as DBE firms owned by Elizabeth Perino, would perform or had performed work on the projects in satisfaction of federal and state DBE participation requirements in the contracts. The governments contended that contrary to McHugh’s statements, Perdel and ASI often functioned merely as “pass-throughs,” performing little, if any, work that would qualify for participation credit under federal and state DBE requirements. Perino, who owned Perdel and ASI in Lockport, was charged with federal mail fraud in 2011, and the case remains pending.

According to the settlement agreement, the governments also contended that Perdel and ASI’s contracted work for McHugh often exceeded the companies’ capacity and experience. Although their projects with McHugh were substantially greater in size and scope than they had previously performed, Perdel and ASI’s expertise to perform larger and more complex projects did not change correspondingly. Rather than Perdel and ASI performing, managing, or supervising the work that McHugh represented they would, McHugh frequently managed union workers they each hired. In some cases, McHugh directed Perdel and ASI as to which union crews to hire.

McHugh, not Perdel or ASI, also selected certain suppliers on each of the contracts, determined the quantity and quality of those materials, negotiated the price, and often drafted a purchase order for Perdel or ASI to put on their letterhead, the governments contended.  That kind of conduct violates federal and state provisions that are designed to give a share of the actual work of government-funded construction projects to minority- and women-owned businesses.

The settlement is neither an admission of liability by McHugh nor a concession by the state and federal governments that their contentions are not well founded, and McHugh expressly denies the claims.

The settlement was reached on behalf of the U.S. Department of Transportation, the Illinois Department of Transportation, the Illinois State Toll Highway Authority, and the Regional Transportation Authority.

The separate three-year administrative monitoring settlement and compliance agreement was reached between McHugh and the Federal Transit Administration, the Federal Highway Administration, the U.S. and Illinois Transportation Departments and their procurement officers, and the City of Chicago. In exchange for the government entities’ agreement not to pursue any suspension or debarment action against McHugh for the covered conduct, McHugh agreed to implement a corporate compliance program and appoint a compliance officer who is knowledgeable about DBE programs. The company also agreed to retain an independent monitor to evaluate McHugh’s performance and submit periodic reports to the government agencies and officials, and to make six presentations to those agencies and officials to discuss and promote compliant policies and procedures for working with DBE firms.

Source: http://www.justice.gov/usao/iln/pr/chicago/2014/pr0501_01.html

Audit finds rampant trouble with women and minority contracting program

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Minnesota has failed for three years to meet federal requirements for a program designed to steer millions of dollars in state transportation projects to minority- and women-owned businesses.

The program has been so plagued by mismanagement and weak oversight that some firms were awarded multimillion dollar contracts for which they might not have otherwise qualified.

In one case, nearly $1.6 million for buying materials on the Union Depot project in St. Paul was funneled through a minority- or women-owned firm to a non-minority-owned contractor. In another case on the same project, nearly $2 million was improperly credited to a non-minority-owned firm.

The findings and others, included in an internal audit of the Disadvantaged Business Enterprise (DBE) program, have led to a shake-up in the Minnesota Department of Transportation’s Office of Civil Rights and may result in additional investigations.

“This is absolutely a wake-up call,” said state Sen. Scott Dibble, DFL-Minneapolis, chairman of the Transportation and Public Safety Committee. Given the gravity of the issues raised by MnDOT’s internal audit, Dibble said he may ask the Legislative Auditor’s Office to conduct its own independent review.

Transportation department officials said they are moving quickly to address the shortcomings cited in the audit of the DBE program.

“This is a high priority for Commissioner [Charles] Zelle and the agency. We need to ensure that all contractors have an opportunity to work on MnDOT projects,” MnDOT spokesman Kevin Gutknecht said in an e-mail. “MnDOT fully supports diversity and believes that a diverse workforce, internally and externally on MnDOT projects provides a stronger and better outcome and better projects.”

The 30-year-old DBE program has long been plagued with fraud and oversight problems at both the federal and state levels. In 2010 and 2011 alone, U.S. Department of Transportation fraud investigations led to $88 million in recoveries, restitutions and fines, along with 10 federal indictments and eight criminal convictions.

Keep reading this article at: http://www.startribune.com/local/east/224726392.html?page=all&prepage=1&c=y#continue 

As federal contracts shrink, minority-owned small business participation drops-off

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About 17 percent of the U.S. population is Hispanic, and 13 percent is black.  In federal small-business contracting, award ratios for those groups are in the single digits.

Small businesses, called the “drivers and engines of growth” by President Barack Obama, attracted about $98.2 billion in government awards last year, according to data compiled by Bloomberg. Hispanic-owned companies won about 8.4 percent of that total, or $8.21 billion, while black-operated small businesses won about 7.2 percent, or $7.1 billion.

“The needle hasn’t moved,” said Ruth Sandoval, president of the National Hispanic Business Group, a New York-based organization representing business owners.

The gap may reflect stiffer competition over a shrinking pool of contract revenue as agencies cut spending. Black- and Hispanic-owned businesses also may have difficulty breaking into the $512 billion market because acquisition officers don’t have a mechanism to specifically target those companies.

Small businesses are generally defined by the government as having fewer than 500 employees or less than $7 million in average annual sales.

Contracts for black-owned small companies declined about 1 percent in the year that ended Sept. 30, 2012 from the previous fiscal year. Awards to the Hispanic-owned businesses rose 1.5 percent — a gain that wasn’t enough to compensate for a bigger drop in fiscal 2011, according to federal procurement data.

Keep reading this article at: http://www.bloomberg.com/news/2013-08-08/minority-owned-small-businesses-trail-as-u-s-contracts-shrink.html 

Sham minority contractors have been hired in your city, probably

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Philadelphia Inspector General Amy Kurland announced last week that local contractors have used “sham minority subcontractors” on 19 projects to skirt antidiscrimination requirements.

In New York, investigations into fraudulent hiring of minority- and women-owned subcontractors are so common that they have become something of a specialty for local prosecutors. The most recent instance was a $10 million settlement reached with Siemens Electrical.

The story is the same in Chicago, Seattle and Dallas. And that’s just in the last few years. Go back further, and it’s the rare city or state that hasn’t endured a scandal or four tied to well-intentioned minority contracting regulations.

The particulars of the rules vary from city to city and state to state, but the objective is always the same: Foster economic development in minority communities by requiring (or strongly encouraging) companies awarded public contracts to hire subcontractors owned by minorities or women.

Keep reading this article at: http://nextcity.org/daily/entry/sham-minority-contractors-have-been-hired-in-your-city-probably 

Contractors plead guilty to illegally obtaining $31 million in contracts intended for small businesses

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Executives at two Arlington, Va.-based businesses have pleaded guilty to fraudulently obtaining more than $31 million in government contract payments that should have gone to disadvantaged small businesses.

The guilty pleas were announced today by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride, Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and NASA Inspector General Paul K. Martin.

“These executives used their knowledge and experience to abuse a program created to ensure minority small business owners could compete for government contracts,” said U.S. Attorney MacBride. “They not only illegally obtained millions from the United States, they also victimized legitimate minority owners who didn’t get the bids.”

“Keith Hedman and his co-conspirators fraudulently obtained valuable government contracts intended for minority-owned small businesses, and pocketed millions of dollars for themselves,” said Acting Assistant Attorney General Raman.  “They abused an important government program, and will now face the consequences.”

“This investigation confirmed that these executives repeatedly took actions that gave them a fraudulent advantage in the contracting process,” said NASA Inspector General Martin.  “I commend the outstanding efforts of our agents and our law enforcement partners involved in this case in protecting the integrity of the 8(a) program.”

According to court documents, Keith Hedman, 53, of Arlington, formed an Arlington-based security service consulting company in approximately 2001.  Hedman formed the company, listed as Company A in court filings, with an African-American woman who was listed as its president and CEO to enable the company to participate in the Small Business Administration’s (SBA) Section 8(a) program, which enables certain small businesses to receive sole-source and competitive-bid contracts set aside for minority-owned and disadvantaged small businesses.  In 2001, Hedman’s company received approval to participate in the 8(a) program on the basis of the African-American president and CEO’s listed role, but when she left the company in 2003, Hedman became its sole owner and the company was no longer 8(a)-eligible.

Hedman admitted that in 2003 he created a shell company, listed as Company B in court records, to ensure he could continue to gain access to 8(a) contracting preferences for which Company A was not qualified.  Prior to applying for the shell company’s 8(a) status, Hedman selected an employee, Dawn Hamilton, 48, of Brownsville, Md., to serve as a figurehead owner based on her Portuguese heritage and history of social disadvantage, when in reality the new company would be managed by Hedman and senior leadership at Company A.  To deceive the SBA, they falsely claimed that Hamilton formed and founded the company and that she was the only member of the company’s management.  They continued to mislead the SBA through 2012, even lying to the SBA to overcome a protest filed by another company accusing Hedman’s former company and the shell company of being inappropriately affiliated.

From Company B’s creation through February 2012, Hedman – not Hamilton – exercised ultimate decision-making authority and control over the company by controlling its finances, allocation of personnel and government contracting activities.  Hedman nonetheless maintained the impression that Hamilton was leading the company, including through forgeries of signatures by Hamilton to documents she had not seen or drafted.  Hedman also retained ultimate control over the shell business’s bank accounts throughout its existence.  In 2011, Hedman withdrew $1 million in cash from Company B’s accounts and gave the funds in cash to Hamilton and three other co-conspirators. In total, Hedman and Hamilton secured through the shell company more than $31 million in government contract payments, which generated more than $6 million in salary and payments for the conspirators that they were not entitled to receive.

In addition, Hedman admitted that he agreed to pay a $50,000 bribe through the shell business to a U.S. government contracting official for the official’s help in securing contracts for Company B.

Hedman and Hamilton pleaded guilty on March 13 and March 15, 2013, respectively, in U.S. District Court for the Eastern District of Virginia to major government fraud and face a maximum penalty of 10 years in prison and a multimillion-dollar fine for that charge. Hedman also pleaded guilty to conspiracy to commit bribery, which carries a maximum penalty of five years in prison.  Hedman agreed to forfeit more than $6.3 million, and Hamilton agreed to forfeit more than $1.2 million.  Hedman is scheduled to be sentenced on June 21, 2013, before U.S. District Judge Gerald Bruce Lee.  Hamilton’s sentencing is scheduled for June 21, 2013, before U.S. District Judge T. S. Ellis, III.

In addition, the following individuals have also pleaded guilty to major fraud or conspiracy to commit major fraud:

• David George Lux, 62, of Springfield, Va., pleaded guilty today before U.S. District Judge Leonie M. Brinkema.  Lux served as the chief financial officer at Company A from 2007 through February 2012 and performed work for Company B throughout that time while officially on Company A’s payroll.  He is scheduled to be sentenced on June 14, 2013, by Judge Brinkema.

• Joseph Richards, 51, of Arlington, pleaded guilty on March 14, 2013, before U.S. District Judge Brinkema in the Eastern District of Virginia.  Richards served as the chief operating officer and chief of staff for Company A from 2005 through 2008 and then vice president from 2010 through February 2012.  He also served as Company B’s chief of staff from 2008 through 2010.  According to court documents, Richards performed work for Company B throughout his time at both companies. He is scheduled to be sentenced on June 14, 2013, by Judge Brinkema.

• David Sanborn, 60, of Lexington, S.C., pleaded guilty on March 13, 2013, before U.S. District Judge Claude M. Hilton in the Eastern District of Virginia.  Sanborn served as vice president at Company A from 2001 through 2009 and the company’s president from 2010 through February 2012.  According to court documents, Sanborn performed work for Company B from its inception while on Company A’s payroll.  He is scheduled to be sentenced on June 28, 2013, by Judge Hilton.

This case was investigated by the NASA Office of the Inspector General (OIG), the SBA OIG, the Defense Criminal Investigative Service, the General Services Administration OIG and the Department of Homeland Security OIG.  Assistant U.S. Attorneys Chad Golder and Ryan Faulconer, a former Trial Attorney for the Criminal Division’s Fraud Section, are prosecuting the case on behalf of the United States.

— News release from U.S. Dept. of Justice – Mar. 18, 2013 – http://www.justice.gov/opa/pr/2013/March/13-crm-323.html 

GDOT seeks comment on draft study of minority- and woman-owned business contract participation

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The Georgia Department of Transportation (GDOT) has released  a preliminary copy of a study it commissioned to judge the effectiveness of its disdavantaged business enterprise (DBE) program.

GDOT’s DBE program is designed to increase the participation of minority-owned and woman-owned businesses in the contracts awarded by the state transportation agency, in accordance with federal DBE requirements.

Specifically, the 2012 Disparity Study of GDOT’s DBE program analyzes the participation of Minority (MBE) /Women-Owned (WBE) firms, and Disadvantaged Business Enterprises (DBE) in GDOT’s construction and engineering contracts from 2009 through June 2011.

An overview of the Disparity Study was presented to GDOT on April 18, 2012, and  a copy of this presentation is available at: http://www.dot.ga.gov/doingbusiness/dbePrograms/Documents/Presentations/DisparityStudy-BoardPresentation.pdf.

A copy of the complete draft Disparity Study is available for download at: http://www.dot.ga.gov/doingbusiness/dbePrograms/Pages/default.aspx.

GDOT is soliciting comment on the draft study and its conclusions.  Feedback about the Disparity Study can be submitted by completing the Public Comment Form (.pdf, 143K)  or sending an email to disparitystudy@dot.ga.gov.

In addition, public comment is being solicited at three public forums being held across the state.  Details appear below.

Public Comment Meeting Dates:

May 22 – 10AM – 12 Noon – Georgia DOT
600 West Peachtree St, NW – 4th Floor,
Atlanta, GA 30308 May 23

May 23 – 10AM – 12 Noon –  Georgia DOT – Thomaston District Office
115 Transportation Blvd – Auditorium A, Thomaston, GA 30286

May 24 – 10AM – 12 Noon – Chatham County/Savannah Metropolitan Commission
110 East State Street, Savannah, GA 31412

Women, minorities pay a high price for procurement gains

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In the wake of reduced federal contract spending, a new study found that the price tag of doing business is higher for minority and women contractors as compared to other small firms.

An American Express survey, “Women and Minority Small Business Contractors: Divergent Paths to Equal Success,” measured 740 active small-business contractors and looked at how the women and minority contractor experiences compares with other small firms in terms of overall contracting activity and success.

It found, particularly for minorities, that the annual investment made to seek federal contracts was 35 percent higher than for the average small firm with the same credentials. While small firms invested an average of $103,827 to secure a federal contract in 2010, the investment made by minority business owners averaged $139,709. Women business owners invested a less-than-average $86,643, but still up 23 percent from their 2009 investment of $70,512.

“It took minority business owners longer to achieve their very first victory in procurement,” the study said.

As bidding activity and success rates dipped for small business contractors from 2008-2010 as compared to three years before, the survey found women contractors were part of the same trend, but minorities weren’t. While minority contractors had a steeper decline in bidding activity than other small businesses, minority firms’ success rates jumped 10 percent in garnering prime contracts between the periods of 2007-2009 and 2008-2010. Meanwhile, overall prime-contracting rates plunged 8 percent during the same period.

Another positive finding showed women and minority contractors were more likely than their non-contracting colleagues to exceed $1 million in revenue and more likely to own larger firms versus their non-contracting peers.

Furthermore, the survey examined “turning points” toward procurement success in these two groups.  It found that 55 percent of most small businesses couldn’t point to a single action that defined their success. However, fellow business owners were found to be “more helpful than average” to minorities in sharing tips and experiences. Outside consultants (procurement advisors, accountants, or attorneys) and agency purchasing officials ranked “higher than average” at helping women.

These groups were more likely to have a specific certification or procurement designation. For women, getting on the GSA schedule was shown to buoy their business and 41 percent said that the designation has been “very or extremely helpful.” On the other hand, certification as a women-owned business was “very or extremely useful” to only 17 percent of the group. For minorities, 8(a) and disabled-veteran status has proved to be the most helpful certification.

The findings are part of the second annual government contracting survey from the American Express OPEN’s Victory in Procurement small business program.

All the businesses in the study are contained in the Federal Procurement Data System and are registered on the Central Contractor database.

About the Author: Alysha Sideman is the online content producer for Washington Technology.  This article appeared Mar. 6, 2012 at http://washingtontechnology.com/articles/2012/03/06/women-minority-contracting-study.aspx?s=wtdaily_070312.

State university procurement expo to be held in Clarkston Oct. 14th

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The University System of Georgia is holding its North Georgia Procurement Expo for small and minority businesses at the Clarkston campus of Georgia Perimeter College on Friday, Oct. 14, 2011.

The expo is being held in conjunction with the Atlanta Tribune’s “Moving Your Business Forward” event.  This one-day event will feature exhibits from University system institutions, providing information on growing businesses, keeping up with advancing technology, and wealth building.  The event targets small and minority vendors, but any vendor interested in learning about how to do business with state colleges and universities is welcome.

The expo’s registration begins at 11:30 a.m., and the program begins with a luncheon at noon.  Exhibits and training sessions are scheduled after lunch, and a business-to-business networking reception is scheduled for 5:00 p.m.

Advance registration is required, and the registration fee is $35.  A brochure containing the registration form, program details, and directions can be downloaded by clicking on this link: ProcurementExpoBrochure2011.

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