How the city swindles minority- and women-owned businesses out of contracts

How the city swindles minority- and women-owned businesses out of contracts

It's no secret that the City of Chicago's MWBE--minority- and women-owned business enterprise program--isn't so good. Established by executive order under Harold Washington and put into law by Richard M. Daley, the idea looks good on paper--make sure that all the citizens of Chicago, regardless of race or gender, get access to the millions the city doles out each year in contract dollars.

But it doesn't really work. Story after story has come out showing that the program is mostly a sham, despite the numbers the city reports. Emilie and Friends, an independent radio and TV talk show in Chicago, just released a report on the city's MWBE program and revealed the many ways the city skirts the law when it comes to giving contracts to everyone.

I find it both interesting and appalling how government bodies actually do things like this. I mean, they don't just write reports saying that they are doing something that they're not. They find a way to manipulate the rules to make it look like they're doing more than they are. Emilie and Friends sat down with Aaron Feinstein of the Office of the Inspector General to discuss just how the city fudges the numbers. Here's a summary, although you can read their entire conversation on page 32 of the full report.

 - Overstating the number of certified contractors: While the city has 2,500 businesses that have been certified as minority- or women-owned businesses, only a tiny percentage of those get contracts.

- Routing $$ to the few: Of the few businesses that actually do win contracts, 10 businesses got 42 percent of that money.

- Playing on the JV team: Bigger businesses can set up what are called "Joint Ventures." They can't get contracts because they're too big, but the smaller, minority-owned arm can. It's totally legal. Emilie and Friends found several businesses with the same name with an address both in the city and the suburbs.

- Fronts: The inspector general's office identified many companies whose business is supposedly an MWBE but actually owned by someone else.

- Pass-throughs: Other businesses receive money and just funnel it to another business that does the actual work. In addition, many contracts for MWBEs are for supplies, so the company actually makes very little profit in the end even though the contract amount looks large.

- Reporting awards, not payments: Say the city picks a MWBE for a $10 million job but only ends up paying them $5 million. The $10 million is what the city puts down in its books for MWBE contracts, even though it only paid the company half that. Feinstein said if the city overreported at the rate it did in 2008 for the whole span of the program, it would mean $400 million less went to MWBEs than it told us.

This summer, The Chicago Reporter investigated our state MWBE program and found that it too seemed to have methods of making its program look better than it was. Our investigation, Empty Jackpot, showed that many Illinois companies don't think the playing field is as level as the state would like us to believe.

One method was something I liked to call "fudging the denominator." Imagine you had a bowl of candy, and you told your child that he could have half the bowl. Sounds generous, right? But really, before he got to the table, you emptied the bowl by half, so really, he was only getting a quarter of the candy you had.

It might be a good parenting strategy, but many suspect the state is doing it too. While the MWBE law is supposed to apply to all contracts, different state departments hide contracts from the program, saying they could only possibly be fulfilled by one particular vendor or shouldn't be bid competitively. All those contracts are hidden in the bag, so when the state says it's fulfilling its 20 percent goal, it's only 20 percent of the contracts it left on the table, not all the contracts it awards.

The city, in effect, is fudging the numerator--saying it paid businesses money that it actually didn't and thereby making its percentage goals. The state, however, may be fudging the denominator--making it smaller so that the number on top looks like a bigger percentage.

A lot of times, people get stuck on whether or not these programs should be around--if they're unjust or unfair to business. But it seems like most of the time, we've yet to see if one could actually work. Maybe the good it could do would change the discussion.

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© Community Renewal Society 2011


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