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Advisory committee reconsiders MBE/WBE sanctions

Monday, August 3, 2009 by Charles Boisseau

Not everyone is happy with the new rules the city adopted last year to clarify the sanctions imposed on prime contractors and consultants who fail to comply with the city’s minority- and women-owned business procurement ordinance.


In a special-called meeting on Thursday, members of the MBE/WBE Small Business Advisory Committee discussed whether to strengthen the sanctions now in place to penalize contractors who fail to follow the law.


Like most major cities, Austin has set goals to ensure that a portion of the millions of dollars the city spends each year goes to participating minority- and women-owned businesses. General contractors landing contracts with the city are required to abide by the city ordinance encouraging minority participation.


In April 2008, the city adopted a tiered process for sanctioning general contractors who don’t follow the law, with a first violation resulting in a written notice. A second violation results in “probation,” a third in suspension for up to 24 months from bidding on city contracts and a fourth violation results in disbarment for up to five years.


Members of the committee, which advises the city’s Small & Minority Business Resources (SMBR) Department, discussed whether to eliminate the first written violation and go straight to probation for the first violation.


Stephen Elkins, director of SMBR, said that since the sanctions were established last year he and his staff have increasingly spoken with general contractors after they have received written notices of violations. He estimated that the department has issued 15 to 20 letters warning of violations of the law, typically because they failed to obtain prior authorization before they substituted, deleted or added subcontractors to a project. No contractors have been sanctioned more than two times – meaning none have been suspended or disbarred.


However, members of the Austin Black Contractors Association, whose membership consists of 35 black-owned construction firms, voiced concerns that enforcement has been lacking.


“The rule is the rule, the law is the law,” said Alayne Johnson, president of the Austin Black Contractors Association.


The first violation amounted to “a slap on the wrist,” agreed Lino Mendiola, a private attorney with Andrews Kurth hired to advise city staff. He said the city might eliminate this first tier.


However, Mendiola expressed concern about making penalties automatic. He envisioned a scenario in which a prime contractor could substitute two minority-owned firms with two other minority-owned firms without prior approval from the department and become disbarred despite trying to do the right thing. He said the director of SMBR needs discretion to rule without having his or her hands tied.


“How is it tying his hands?” Johnson asked. “He still has discretion” to take into account specific circumstances of any violations before recommending sanctions.


Saying that minority firms “are under duress” from a combination of these weak sanctions and the poor economy, Carol Hadnot, a founder and board member of the black contractors association, argued for less leniency. “It’s not just policy. It’s the law.”


It was unclear whether contractors can use a preconstruction meeting with subcontractors, including minority firms, to hash out any potential problems before they occur. Advisory committee Member Ed Lowenberg said general contractors don’t gather all subcontractors at one time, but only when needed before a specific job, while Johnson said this was not the case on city contracts.


Elkins remarked that the sanctions and violation letters have gotten the attention of the contracting community. He said the number of violations have decreased since the rules were implemented in April 2008.


If so, Lowenberg, vice chair of the committee, questioned why fix something that seems to be working.


“If all the violations are going down, why do we want to change this?” he asked.


The meeting adjourned with an agreement that the city staff would supply specific information about violations and recommendations for how to modify the program – such as eliminating the first tier of sanctions — at the committee’s next regular meeting.

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