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Panel recommends changes to Third Party Agreement

Thursday, August 25, 2011 by Josh Rosenblatt

After nearly a year of deliberation, a city advisory committee has recommended changes to the Council’s Third Party Agreement Resolution. At a meeting of a Council committee on minority contracting, members of city staff and the Law Department gave their support to about half of those recommendations but argued that the city could face legal problems if it approves the others.


The subcommittee has been exploring ways to expand the Third Party Agreement to require more companies and contractors the city does business with to comply with the city’s MBE/WBE ordinance, meaning they would be required to make efforts to meet women-owned and minority-owned contracting and subcontracting participation goals or “demonstrate a good-faith effort to meet the goals with respect to any design or construction projects.” The group provided 11 recommendations to the city on how to achieve that expansion.


Staff and outside legal counsel have two primary concerns preventing them from supporting five of the advisory committee’s recommend changes.


In a letter sent to the city’s Law Department on Aug. 4, attorneys from Andrews Kurth LLP, the firm hired by the city to act as outside counsel, wrote: “Specifically, we are most concerned with (1) the application of ethnic-specific goals to the totality of the projects benefiting from City infrastructure; (2) the requirement that the third party put forth specific efforts to hire local residents.”


Under the terms of the subcommittee’s revised ordinance, the city would require all third parties benefiting from city infrastructure, such as roadways and wastewater lines (rather than, say, financial incentives), to abide by the MBE/WBE ordinance.


The legal problem with putting conditions on projects benefiting from city infrastructure is that the city is required by law to provide that infrastructure. According to a city ordinance, access to utility infrastructure “is to be fair, reasonable, and non-discriminatory.”


“The city is already obligated to provide those services, to provide electricity and roadways and water, so there’s really no room for negotiations for the party,” attorney Gabrielle Stokes of Andrews Kurth told the Council committee. “You’re basically requiring them to comply with the ordinance.”


In their letter, the attorneys from Andrews Kurth also expressed reservations about the “ambiguity and potential expansiveness of this mandate,” writing, “Every project in the City is ‘benefiting’ to some extent from City infrastructure. And to some extent, most infrastructure in constructed for the specific benefit of certain property.”


Legal issues could also make untenable the subcommittee’s proposed amendment mandating that third parties working with the city “make commercially reasonable efforts to employ residents of the Austin-Round Rock Metropolitan Statistical Area”. Staff and outside counsel believe such a law could violate the commerce clause of the U.S. Constitution, under which “a state (or municipality) generally cannot pass legislation improperly burdening or discriminating against interstate commerce.”


“The city cannot mandate that a firm hire a local workforce,” Stokes told the committee. A municipality “cannot favor its own citizens.”


In addition to the potential legal challenges it could engender, the “local-hiring” provision could place Austin at a disadvantage when competing for outside business. In a letter sent to the Council committee on Aug. 8, Small and Minority Business Resources Department (SMBR) Director Veronica Briseño Lara and Economic Growth and Redevelopment Services Office (EGRSO) Director Kevin Johns wrote that a company looking to relocate to Austin would be penalized for bringing a portion of its workforce with it, which would result in fewer companies wanting to relocate here.


“One of the City’s key economic development goals is to get a company to relocate its headquarters to Austin,” wrote Lara and Johns. “The recommendation to hire locally will prevent ANY company moving its headquarters …”


Paul Saldaña of the U.S. Hispanic Contractors Association told the committee that he would “agree to disagree” with staff’s recommendations.


“At the end of the day, (the local-hire amendment) speaks volumes and makes a statement that we’re going to hold companies, entities, or organizations that want … third-party agreements with the city, our community values commitment to hire local and a diverse workforce,” said Saldana.


The three-person Council committee voted unanimously to accept the six recommendations agreed upon by staff and to direct staff and the advisory committee to continue working on the five outstanding items and to bring back recommendations on those items to the next committee meeting, which is scheduled for Sept. 13.

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