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City toughens sanctions on subcontractor violations

Thursday, January 14, 2010 by Josh Rosenblatt

Companies getting assistance from the City’s Small and Minority Business Resources Department (SMBR) are facing stricter compliance penalties this year. Gone away is the warning letter; here to stay is six months’ probation.


The SMBR assists minority-owned and women-owned business enterprises (MBE/WBEs) in securing contracts with the City of Austin in the areas of construction, professional services, commodities, and non-professional services and encourages those enterprises by establishing procurement goals for each contract type.


In exchange for this assistance, businesses are required to comply with certain rules regarding the use of subcontractors. Substitutions, additions, or deletions of subcontractors without prior authorization from the SMBR are considered violations of the MBE/WBE ordinance, punishable by sanctions.


According to Veronica Lara, SMBR’s assistant director of certification and administration, these sanctions have been progressive since April 2008, meaning that punishments get more severe with each violation.

Until this past week, the first sanction the department would impose on a violator would be a simple letter of warning letting the violator know that his/her company had broken a rule. This letter was followed by a probationary period of up to six months if a second violation was committed, a suspension period of up to two years following a third violation, and, finally, a debarment for up to five years.


After the SMBR Advisory Committee met this summer, however, the group determined that the first sanction – the warning letter – was unnecessary.


“We realized that the warning letter and the probationary period were essentially the same thing,” Lara told In Fact Daily, “…meaning we were giving violators two first chances rather than one.”


Last week the SMBR announced that it was doing away with the warning letter and making the probationary period – “us putting you on watch,” according to Lara – the first sanction facing a noncompliant enterprise.


In addition, the director of the SMBR now has the authority to recommend stronger sanctions for more severe violations immediately, rather than having to wait for a second or third violation to increase punishment. The new rules allow the director the flexibility to skip the progressive sanctioning process if, as Lara said, “a contractor’s or consultant’s noncompliance is egregious, complex, and extensive.”


The new sanction recommendations became effective on January 1st.


Not everyone supports the policy changes. MBE/WBE and Small Business Enterprise Procurement Program Advisory Committee Advisory Board Member Ed Lowenberg, for one, took issue with the sanction recommendations when the SMBR filed a Notice of Rule Adoption on Oct. 9.


Lowenberg, president and owner of Solis Contractors Inc., told In Fact Daily, “To my mind, there was no reason for the change. We had only issued maybe one warning in two years. The system never got tested. The SMBR wanted to increase how stringent the sanctions were, but how do we know it wasn’t working? We never tried it; we never tested it; we never saw any effect.”


According to Lara, there was no one precipitating event that led the SMBR to changes its guidelines, simply the realization by the advisory board last summer that the department’s sanctioning procedures were redundant, a problem she says is cleared up by the new amendment.


Between Aug. 2008 and Nov. 2009, there were 14 violations by MBE/WBEs, averaging about one a month.



Sanction recommendations are reviewed by the City’s Purchasing Department whenever a prime contractor or prime consultant fails to obtain prior authorization for substitutions, additions, or deletions of subcontractors. Illegal substitutions are a violation of the MBE/WBE Ordinance and encompass a rolling period of up to 2 years from the first violation.

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