What are the advantages of Minority Business Enterprises (MBE) certification? Certification as a MBE provides greater exposure for work opportunities on public and private projects. The names of all certified MBEs can commonly appear in the MBE Directory, a reference manual that is widely disseminated to purchasing administrators, other buying departments, contractors and to the public. Often, prime contractors use MBE Directories as a basic resource for soliciting minority participation on projects. If a firm is not a MBE certified company, a prime contractor cannot receive credit toward achievement of the MBE participation goals by using that firm.” [Source: State of Maryland DOT 2006]
Was it ever anyone’s real intent to expand racial discrimination while implementing race neutral practices? In the world of supplier diversity improvements, program managers are digging a deeper hole of bias activity than the large hole identified some forty years ago. The public and private sector’s administration of supplier engagement has twisted the purpose so much that supplier discrimination has reached the level of a legal edict.
On October 24, 1978, President Carter signed Public Law 95-507, championed by U.S. Member of Representatives, Parren J. Mitchell, amending the Small Business Investment Act of 1958. Still today, this particular piece of federal legislation serves as the bedrock of federal procurement contracting making it more readily accessible for minority business enterprises (MBE) to access contracting opportunities.
Public Law 95-507 changed the emphasis on contracting activity from voluntary to mandatory and from best efforts to maximum practicable opportunity. Interesting to note that nowhere in, or subsequently ratified, does this legislation authorize the implementation or construct language requiring ownership certification of minority business enterprises. A good reason is that the US Small Business Administration in 1969 began the formal 8(a) process which covers ownership certification for small disadvantaged businesses.
Notwithstanding, the ownership certification procedures began from the wide spread belief and outcry among procurement personnel that qualified MBE were difficult to find. It was an unfounded belief and it prompted a number of unscrupulous entrepreneurs to take advantage of buying regulations that accelerated the use of underutilized minority-owned, controlled and operated businesses. The unscrupulous entrepreneurs earned the dubious label of ‘front’ company. They falsely presented themselves to buying professionals as MBE and garnered contracts that bolstered false and misleading reports.
This prompted action to promote and develop a greater manageable filter to distinguish authentic minority firms from the shams. Procurement programs designed to engage more minority business wanted to maintain integrity in their formal reports to show parity and economic growth of MBE. Thus, verifying business backgrounds began to weed out front firms by giving hard challenges to test the ownership, management, and control of MBE.
So, interpreting Public Law 95-507 made swift action in a skewed direction for social and economic change. When reviewed, the ownership certification process ironically builds an unfortunate case of anti-growth away from the spirit and intent of encouraging and retaining minority business.
The actual utilization of minority firms in federal contracting activity has not grown proportionately with the increased level of certified minority firms.
It is therefore easy to point out that ownership certification agencies have outgrown their purported usefulness. Whereas, most organizations that report their respective use of minority activity show a contrary trend in expenditures with minority owned firms. For example, the top contract awards reported by any major buying organization list total dollars awarded from highest to lowest in the order of business ownership; White females, Asians, Latinos, Blacks, and Native Americans. Although, when you review major databases of certified MBE the results go in the opposite direction; going largest to smallest certifications are black firms, Latinos, Asians, White Women and then Native Americans. The compelling fact is that MBE programs are spending an exorbitant amount of resources on meeting a nonexistent component of the impacted Public Law 95-507. Likewise, a major portion of talented technical resources has been absorbed into the ownership certification management, where these skills could be place into better use on small business operational assistance.
The verification audit to certify or decertify the ownership of firm requires a mountain of detailed paperwork, and it becomes quite time consuming for the business under review. In addition, the certified firm expends extra costs for bookkeeping, clerical, or notary public services that their competing white-owned firms do not have to spend. Coupled with this are the seemingly invasive questions to a business owner’s privacy to submit board minutes, tax returns, birth certificates, bank signature cards, negotiated lease agreements, etc. The benefits promulgated by certification are that once verified these businesses have higher-level clearance to pursue competitive bid opportunities. In addition, major buyers will access the verified firm’s information through periodic visits to the database.
The largest benefit touted by ownership verification managers is that the competitive bidding feature is in a range of 10% – 25% of the total procurement dollars available for certified firms. Arithmetically, that means that 90% – 75% of the competitive dollars go to firms excluded from the certification process, thereby making non-minorities the larger benefactors of the program, excluded freely from the ownership certification process.
[Poor auditing practices of business owned,, controlled, and operated background checks is employed by the National Minority Supplier Development Council (NMSDC) and its regional affiliates. These groups conduct certifications for a fee to MBE ranging from $150 to $250, plus an annual renewal charge to stay classified as a certified MBE. Many NMSDC members request minority firms to have this certification completed and updated before talking with their respective buyers about opportunities. Instilling yet another diversion from open access and inclusion to contracting opportunities for MBE.]
Our professional consulting services center in California, a state that is rapidly approaching one million MBE. The number of MBE at the last census was 980,878, complimented by a large number of business ownership certifying agencies, including but not limited to the following:
California Department of Transportation*
California Pubic Utilities Clearinghouse
City of Fresno*
City of Los Angeles*
City of Oakland
City of San Diego*
Central Costa County Transit Authority*
Contra Costa County
Golden Gate Bridge, Highway and Transportation District
Los Angeles County
Los Angeles County Metropolitan Transportation Authority*
Los Angeles Unified School District
National Minority Supplier Development Council
Orange County Transportation Authority*
Port of Oakland
San Diego County Regional Airport Authority*
San Francisco International Airport*
San Francisco Municipal Railway*
San Joaquin Regional Rail Commission*
San Mateo County Transit District*
Santa Clara Valley Transportation Authority*
United States Small Business Administration
Women’s Business Enterprise National Council
Yolo County Transportation District*
Paralleling civil rights and certification may seem like a stretch to some, but as we review the results for certified firms that win contracts, there is an encroachment on civil principles for doing business.
Large organizations publish reports that exclude the pool of certified firms versus the actual number of certified firms that receive a contract. These reports describe the firms utilized and the awarded dollars by a percentage to the total.
Clearly if you have a certified database of firms numbering around 5,000, and less than 500 of them receive contracting opportunity, there is an unwarranted use of the certification process. Certified MBE do not automatically receive bid opportunities from the very agencies that certified them.
Conversely, a number of MBE working profitable contracts with major buying organizations have never attempted to complete a certification test. Where the latter reinforces the true spirit and intent of Public Law 95-507, which is to have open-access to contracts in federal contracting.