Honey, I Shrunk the Black Supplier Database!

By Dean L. Jones, C.P.M.

The U.S. Census Bureau published special tabulations in 2007 for all minority firms based in California, which totaled 915,514 active concerns. Of this total, black business enterprises comprise 112,815 active firms in the database. In comparison, the California Public Utilities Commission (CPUC) publishes an Internet database of all minority, women, small disadvantaged, and disabled veteran firms that have business ownership verification by their agency. 

http://www.cpuc.ca.gov/PUC/supplierdiversity/

This restricted database shows a total number of 3,486 certified firms as of September 24, 2008.  The number of black-owned certified firms (men and women) reflects 299 concerns. This is roughly .3% (strikingly less than one percent) of the total number of black-owned business doing business in California by the aforementioned 2007 U.S. Census report.

There are currently 22 investor-owned utility corporations regulated by the CPUC to access this database for the sole purpose of contracting and purchasing opportunities consideration for verified minority, women and service veteran disabled owned firms. The most notable utilities include, but are not limited to, AT&T, PG&E, Sempra Energy, SDG&E, SCE, and Verizon that have a collective spend for operational products and services exceeding $18 billion dollars each year.

It should be noted that the black-owned firms operating in California with paid employees number close to 10,000, with an overall employment of 68,000 people. The gross receipts for these firms alone exceed $9 billion dollars each year. This raises an obvious question about the CPUC’s verified database, operated out of San Francisco CA by Asian Inc., which apparently has found difficulty with recruiting qualified black-owned firms to verify their respective ownership for inclusion into the CPUC’s supplier resource database.

Even if the CPUC database were able to certify 10,000 black-owned firms instead of its current 299, it would still only represent 8% of the total black-owned companies in the state, according to the U.S. Census Bureau. Worse still is the fact that the 299 certified firms have taken over twenty-years (two decades) to compile, with a net expenditure of $25 million dollars. This dollar expense is derived from the CPUC Supplier Clearinghouse contract life that began in November 1988. Originally, the Clearinghouse contract was outsourced to the Los Angeles based Cordoba Corporation at roughly $3 million dollars in its first year of operation. Subsequent to this start-up phase, the contract was awarded to Asian Inc., who managed to reduce the operating costs to approximately $1 million per year. All of the investor-owned utilities contribute to the cost of operating the clearinghouse each year to spread the burden of this supplier verification expense.

Initially, the process for CPUC Clearinghouse had each participating utility submit their purported minority/women suppliers who would be certified in the first five years of the operating contract. Now, this long-term clearinghouse supplier certification contract reports verification of a marginal 3,486 firms. When you draw out the unit cost it equates to something like $7,100 per certification over the CPUC Clearinghouse’s operating life. This unit cost is much higher when you factor in the total management staff costs that have been applied to this effort from all of the 22 utility corporations, CPUC and legislative representatives.

In April 2007, the CPUC Supplier Clearinghouse reported 383 black-owned verified companies in its database. The current report of only 299 black-owned firms reflects a reduction of 84 firms, or a 22% drop of viable black-owned firms available for contracting opportunities, in just over the span of one year. Honey, somebody shrunk the black supplier database!

Here are a few reasonable questions: 

• How can a black-owned firm convincingly expect to have a positive win-capture rate of California utility corporate bids when the bulk of viable suppliers are in other databases? 
• Who would want to consider this as a viable supplier resource pool from a dwindling total number of firms?
• What can possibly be the state of mind of utility purchasing management personnel when they access a database with suppliers in a relatively small quantity? Or, perhaps the black supplier database is inadequate?
• Does this amount to a poor management investment of utility ratepayer’s money for economic development with this seemingly fractional business Clearinghouse Certification program?

In 1986, there were large-scale discussions between the California State Legislature and respective Utilities as to how to define minority business certification. One suggested solution was to self-certify these firms, which was summarily dismissed by the State and dominant telecommunication corporation that was paying the lions share of the proposed Clearinghouse cost.  Obviously, the process to induct a more intrusive verification process prevailed, but at enormous costs and ineffective solutions to this uncommon challenge.

Unlike where some infectious vaccinations expose the very bacteria to build immunity in the body to ward off the attacking bacteria, remedying human discrimination with human discrimination does not quite process the same.  Meaning, you cannot operate a certification process by injecting a bias for supplier verification on some and not others. In fact, white male firms are not required to go through an arduous process to determine their business ownership in order to receive a contracting opportunity.  So why would you inject a different process for those with dissimilar skin color as this is discrimination no matter how you slice it?

If we collectively examine the desired outcome for administering equal opportunity of supplier engagement, there is an obvious example on how this would fair better.  Take the no certification process for veteran-owned business enterprises.  A veteran or a service-disabled veteran self-certifies his/her veteran status when he/she registers on PRO-Net and when responding to a government solicitation.  A DD Form 214 can evidence the proof of being a service-disabled veteran and a Veteran’s Administration certified letter as to disability.

The preceding practice lends credence to the contracting process that fraud is not assumed prior to extending bid opportunities and business discussion phase of engagement. Contingent upon contract approval, then and only then, should a firm be subjected to ownership verification for being a minority or socially/economically disadvantaged group member?  In general, qualified bidders are selected on their responsiveness to price, quality and responsibility, while the color of the business owner’s skin is incidental to the supplier selection decision. 

The exercise of certification is a parity issue, where the review should customarily follow supplier selection.  Buyers and sellers have enough on the table regarding cost containment, environmental impacts and technology advancements.  The ethical requirements of ownership can be easily reviewed by sending a confirmation through the US Mail, a Best “Viable” Practice. (www.bestviablepractices.com)