Agenda Item 7D
April 14,2015
Action
MEMORANDUM
April 10,2015
TO:
FROM:
~obert
H.
Drummer.
Senior Legislative AttomeyrQ
Procedures
County Council
SUBJECT:
Action:
Bil148-14, Purchases from Minority Owned Businesses
Request for Proposals
Government Operations and Fiscal Poticy Committee recommendation
(3-0): enact
the Bill with amendments.
Bill 48-14, Purchases from Minority Owned Businesses - Procedures - Request for
Proposals, sponsored by then Council President Rice, then Council Vice President Leventhal, and
Councilmembers EIrich and Branson, was introduced on October 21,2014. A public hearing was
held on December 2 and a Government Operations and Fiscal Policy Committee worksession was
held on March 19.
Background
The 2014 Disparity Study found a statistically significant underutilization of some
Minority, Female, and Disabled (MFD) groups in each procurement category that can be attributed
to discrimination in the marketplace. Although the County's current MFD subcontracting
requirement has increased the utilization of MFD firms, new ideas and remedies are necessary.
The goal of this Bill is to authorize an additional tool to remedy the significant underutilization of
some MFD groups in County procurement.
Bill 48-14 would permit an evaluation factor in a request for proposals to increase the
participation of ,minority owned firms in certain procurement contracts. The Department of
General Services Director! would be authorized to establish an evaluation factor in a request for
proposals that would award additional points for a proposal from:
(1)
a contractor for whom a goal has been set under the MFD program; and
(2)
a contractor for whom a goal has not been set who proposes to exceed the minority
owned business procurement subcontracting goal established for the contract.
reorganized the Executive Branch and established the Office of Procurement as a principal office of the
Executive Branch. Therefore, implementation would
be
the responsibility of the new Office of Procurement.
1
Bi117-15
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For example, an RFP that includes a total of 100 points could add an evaluation factor for
MFD participation worth 10 points.
An
MFD offeror would receive 10 points. A non-MFD offeror
who submits an MFD subcontracting plan that meets the contract goal of 20% would receive 5
points for MFD participation. A non-MFD offeror who submits an MFD subcontracting plan that
includes at least 30% MFD participation would receive 7 points for MFD participation.
Public Hearing
Herman Taylor, representing the Minority Business Economic Council, supported the Bill
to address the underutilization of MFD businesses in County contracts. (©13) Timothy Fay·
opposed the Bill arguing that it would violate the Equal Protection Clause of the 14th Amendment
to the United States Constitution and was unnecessary to address the underutilization of MFD
businesses in County contracts.
14-18)
GO Committee Worksession
Council President Leventhal and Councilmember Rice attended the meeting in addition to
the GO Committee members. DGS Director David Dise and Grace Denno, DGS, represented the
Executive Branch. Linda Price, Legislative Analyst and Robert Drummer, Senior Legislative
Attorney, represented the Council Staff. Linda Price explained the comments from the MFD Task
Force. The Committee discussed the Bill with the Executive Branch representatives. The
Committee amended the Bill to limit the evaluation points from 10-20% to up to 10% of the total
points. The Committee approved (3-0) the Bill with the amendments.
Issues
1.
What is the fiscal and economic impact of the Bill?
OMB estimated that the MFD Program Manager would need to spend an additional 6 hours
per week reviewing RFPs for compliance with this program. OMB indicated that this increased
staff time can be absorbed by existing personnel. OMB pointed out that this program would
require the offerors to submit their MFD plans with the proposal instead oflater in the procurement
process. This change may increase the offeror's upfront costs and would be reflected in the price
of the offer.
Finance was unable to estimate the economic impact ofthe Bill.
In
FY 2014, DGS received
143 proposals responding to an RFP. If the intended goal of remedying underutilization ofMFD
firms in County contracts is realized, it could have a positive impact on certain MFD businesses
in the County.
2. What is the problem the Bill is designed to address?
Montgomery County has operated a voluntary affirmative action plan in its procurement
policies based upon the race and gender ofthe owners ofthe business for more than 20 years (MFD
Program). During this time, the MFD Program has included a requirement that a prime contractor
on certain County contracts subcontract a certain percentage ofthe work to MFD firms. Since the
2
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United States Supreme Court decided
City ofRichmond
v.
Croson,
488 US 469 (1989), a state or
local government preference in contracting based upon race or gender must satisfy the Court's
strict scrutiny
test to survive a challenge under the Equal Protection Clause ofthe 14th Amendment.
Under the strict scrutiny test, the government must show that the afftnnative action program is
based upon a compelling governmental interest and is narrowly tailored to achieve this interest.
Eliminating the effects of past discrimination based upon race and gender in government
contracting is a compelling governmental interest.
In May 2013, the County hired Giffin
&
Strong, PC (GSPC) to conduct a comprehensive
disparity study. The goal of the study was to detennine if there exists a statistically significant
disparity between the number of available MFD finns in the relevant market and the number of
MFD finns that have received work on County contracts. GSPC conducted a quantitative analysis
of the County's contracting history between July 1, 2007 and June 30, 2012. This analysis started
with a detennination of the relevant geographic market area for each of the 4 categories of
procurement contracts - Construction, Professional Services, Services, and Goods. GSPC
concluded that the relevant market was the geographic area where 75-85% ofthe finns contracting
with the County are located. Within each relevant market, GSPC compared the percentage of
finns in each race, ethnicity, gender, and disability group that are qualified, willing and able to
perfonn services used by the County with the percentage of dollars spent by the County on finns
in each MFD group. GSPC used this analysis to determine if each MFD group was underutilized
or overutilized in each relevant market. GSPC looked at both prime contractor utilization and
subcontractor utilization.
GSPC further analyzed the results to determine if the underutilization observed was
statistically significant and ifthe underutilization could be attributed to the MFD status ofthe finns
through both a regression analysis that controlled for other possible explanations, such as business
size or experience, and anecdotal evidence.
The complete report can be found at:
http://www.montgomerycountymd.gov/catlservices/disparitystudy.html.
GSPC found a statistically significant underutilization of some MFD groups in each
procurement category that can be attributed to discrimination in the marketplace. Although GSPC
did not find a statistically significant underutilization for all MFD groups in each category, they
did find that African American owned finns were underutilized in each procurement category each
year of the study. GSPC concluded that the "evidence suggests that absent affinnative measures
the County would be a passive participant in a pattern of exclusion of MFD finns." See Report,
page 235.
The principal component of the County's MFD Program for the past 20 years has been a
subcontracting requirement. The County operates a Local Small Business Reserve Program that
results in awards of prime contracts to local small businesses
2,
but the MFD program has
concentrated on mandatory subcontracting. DGS found that in FY2014, MFD finns submitted
only 32% of the bids, but received an award 57% ofthe time they bid.
In
contrast, non-MFD finns
Many local small businesses are also MFD firms. A small business reserve program based only on the size of the
firm is often considered a race and gender neutral program that can increase the utilization ofMFD businesses without
satisfying the strict scrutiny test.
2
3
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submitted 68% of the bids, but received an award only 42% of the time they bid. Here are the
FY2014 statistics from DGS:
FYl4 prime minority contractors responses and awards
# of bids/proposals %of
submitted
bids/proposals
submitted
Non-MFD
208
African American
Hispanic American
Asian American
Native American
Female
Persons with
Disabilities
25
28
8
0
27
9
97
305
8%
9%
3%
0%
9%
3%
32%
100%
# of Awards
% of awards resulting from
submitted
42% (88/208)
7
19
5
0
16
4
51
139
28%
68%
63%
0%
59%
44%
57% (51/97)
47%
Total MFD
Total
Therefore, part of the remedy for the statistical underutilization may be increasing the
number of MFD fmns that bid on County contracts. Bill 48-14 would be an additional tool that
could be used to directly increase the number ofMFD firms bidding and ultimately winning awards
of County contracts.
3. Is the Bill supported by the 2014 Disparity Study?
The Bill would authorize the addition of a new evaluation factor based upon MFD
participation in appropriate contracts awarded through the RFP process.
It
would only be one of
the evaluation factors. Under the Bill, the evaluation factor must be worth between 10% and 20%
of the total number of points. Under the current MFD Program, the County reviews the utilization
of each MFD group in each contract category against the availability found by GSPC each year to
determine if there should be a goal for the following year for that MFD group in that category of
contract. The FY 2013 and FY 2014 MFD utilization and availability is shown at ©19-20.
An
MFD firm must have an MFD goal in order
to
receive points as an MFD under Bill 48-14.
In
addition, a subcontract to an MFD firm that does not have a goal for that year is not counted toward
meeting the mandatory MFD subcontracting goal. Therefore, Bill 48-14 is designed to limit the
preference to MFD firms in a group that has been underutilized in the prior year.
In order to be narrowly tailored, an MFD Program must also consider the effect of the plan
on third parties non-MFD firms. A program that creates a sheltered market by limiting bids to
only MFD firms is difficult to defend because it does not permit a bid from a non-MFD firm. A
subcontracting program, like the current MFD Program, does not eliminate a bid by a non-MFD
firm. Bill 48-14 does not eliminate an offer by a non-MFD firm as long as the percentage ofpoints
devoted to MFD participation is not so great to make it almost impossible to
win
the contract as a
non-MFD fmn. Twenty percent of the points may be too much. Committee recommendation
4
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(3-0): amend lines 76-79 of the Bill to limit the MFD participation evaluation factor to no more
than
10%.
See ©4.
4. What are the policy considerations for the Bill?
An award to an MFD firm under this new tool may result in a higher price or the award of
a contract to a firm that would not have been the best value under the normal factors established
to judge value to the County. MFD participation is unrelated to price or performance.
It
also may
result in a non-MFD firm losing an award solely based upon the race or gender of the owners of
the firm. It is also difficult to predict if it would result in more MFD firms placing offers on RFP
contracts or more MFD firms receiving more of these RFP contracts.
Another consideration is the added complexity and delay in award that inevitably results
from new requirements for firms bidding on County contracts. This Bill would require an offeror
to submit an MFD subcontracting plan along with the offer. This would require an offeror to find
qualified subcontractors before the offeror has any evidence that the offeror is likely to receive an
award. This could complicate negotiations between the offeror and prospective subcontractors
and make submitting an offer more costly and time-consuming. Would this reduce the number of
offerors who submit offers? Would it increase the time between solicitation and award?
However, the Bill does not require this new tool to be used on every RFP contract. The
Director of Procurement would have discretion to use it in appropriate circumstances. The
Procurement Regulations could identify the circumstances where it would be used. Finally. it
would only assist an MFD firm that is a member of a group that has a statistically significant
underutilization for that category of contract in the prior year. Committee recommendation
(3­
0):
enact the Bill with the amendment described above.
This packet contains:
Bill 48-14
Legislative Request Report
Fiscal and Economic Impact statement
Testimony
Herman Taylor
Timothy Fay
FY 2013 MFD Utilization and Availability
FY 2014 MFD Utilization and Availability
Circle
#
1
6
7
13
14
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F:\LAW\BILLS\l448 Purchases From Minority Owned Businesses - Request For Proposals\Action Memo.Docx
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Bill No.
48-14
Concerning: Purchases from Minoritv
Owned Businesses - Procedures ­
Request for Proposals
Revised: March 19,2015 Draft No. _5_
Introduced:
October 21, 2014
Expires:
April 21 , 2016
Enacted: _ _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effe~ve:
____________________
Sunset Date: _____________
Ch, _ _,
Laws
of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President Rice, Council Vice President Leventhal, and Councilmembers Eirich,
Branson, Navarro, and Riemer
AN
ACT to:
(1)
(2)
(3)
establish an evaluation factor in a request for proposals to increase the participation
of minority owned firms in certain procurement contracts;
add additional tools for increasing the participation of minority owned frrrns in
certain procurement contracts; and
generally amend the County's minority owned business purchasing program.
By amending
Montgomery County Code
Chapter 11 B, Contracts and Procurement
Section 11B-60
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface bracketsD
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL
No. 48-14
1
Sec.
1.
Section IlB-60 is amended as follows:
I1B-60. Procedures.
2
3
4
(a)
By September 30 of each year, the Chief Administrative Officer must
set for the following calendar year percentage goals of the dollar value
of purchases subject to this Article for each socially or economically
disadvantaged group. The goals must correspond to the availability of
that group by source selection method and purchasing category in the
relevant geographic market area as determined by the most recent report
that the County Executive must submit to the County Council under
Section IlB-61(b) to perform work under County contracts. The Chief
Administrative Officer must set separate goals for each socially or
economically disadvantaged group in the County's purchases of goods,
construction, professional services, and other services.
The Chief
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Administrative Officer must not set goals for a socially or economically
.
disadvantaged group unless the Chief Administrative Officer determines
that the value of purchases made during the previous fiscal year from
that group in each category of purchases under a particular source
selection method, compared with the availability of that group to
perform work in that category, shows a significant under-utilization of
the group.
(b)
The Chief Administrative Officer must adopt procedures to certify and
decertify minority owned businesses.
(c)
The Office of Procurement must publicly notify businesses of
prospective procurement opportunities.
(d)
For those procurements where a goal has been set under subsection (a),
the Office of Procurement must encourage minority owned business
participation in procurement. These activities should include:
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~usinesses
- request for proposals\bill5.doc
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BILL
No. 48-14
28
29
30
31
(1) .
distribution to potential· contractors for whom a goal has not been
set of a list of potential minority owned business contractors for
whom a goal has been set with a requirement that one or more be
contacted if any work subject to a goal is being subcontracted;
32
33
34
(2)
a provision in all solicitations for procurements in excess of
$50,000 that requires, subject to the waiver provisions of
subsection (h), businesses for whom a goal has not been set
acting as prime contractors
to
subcontract to minority owned
businesses for whom a goal has been set a percentage of the total
dollar value of the contract that is consistent with the numerical
goals established under subsection (a);
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(3)
a requirement that a contractor for whom a goal has not been set:
(A)
agree to a plan showing how the contractor proposes to
meet
its
minority
owned
business
procurement
subcontracting goal; and
(B)
identify, before a notice to proceed is issued or
performance of a contract begins, whichever occurs fIrst,
each minority owned business that the contractor intends to
subcontract with and the projected dollar amount of each
subcontract, and promptly notify the using department of
any change in either item; [and]
(4)
contract requirements that minority owned business participation
goals be maintained by prime contractors throughout the life of
the contract, including modifIcations and renewals, subject to the
waiver provisions of subsection (h). Contract requirements:
(A)
may include obligating contractors subject to the minority
owned business procurement goals
to
provide in each
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BILL
No.
48-14
55
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subcontract with a minority owned business a provision
requiring the use of binding arbitration to resolve disputes
between the contractor and the minority owned business
subcontractor; and
(B)
must make failure to submit documentation showing
compliance with a minority owned business subcontracting
plan under paragraph (3) grounds for withholding any
remaining payment or imposing liquidated damages unless
failure to comply with the plan is the result of an
arbitration decision under subparagraph (A) or a waiver
granted under subsection (h). Liquidated damages under
this provision must equal the difference between all
amounts the contractor has agreed under its plan to pay
minority owned business subcontractors and all amounts
actually paid minority owned business subcontractors
under the contract, considering any relevant waiver or
arbitrator's decision. Failure to show compliance with a
. minority owned business subcontracting plan must also
result in fmding the contractor non-responsible for
purposes of future procurements with the County during
the next 3
years~
and
ill
an evaluation factor with
~
value of
[[ill
least 10%, but]] no more
than [[20%,]] 10% of the total available points in
~
request for
proposals issued under Section IlB-I0 awarding additional
points for
~
proposal from:
(A)
~
contractor for whom
~
goal has been set under subsection
lli1
and
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from
minority ow0.usinesses. request
for
proposals\bill5.doc
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BILL
No.
48-14
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83
84
85
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Approved:
ill}
~
contractor for whom
:Qro:Qoses to
set who
goal has not been
- - -
exceed the minori!y owned business
~
:Qrocurement subcontracting goal established for the
contract.
*
*
*
George Leventhal, President, County Council
Date
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Approved:
Isiah Leggett, County Executive
Date
91
92
This is a correct copy ofCouncil action.
Linda M. Lauer, Clerk ofthe Council
Date
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o~usinesses.
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f;l
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LEGISLATIVE REQUEST REPORT
Bill 48-14
Purchases from Minority Owned Businesses-Procedures-Request for Proposals
DESCRIPTION:
Bill 48-14 would establish an evaluation factor in a request for
proposals to increase the participation of minority owned finns in
certain procurement contracts. The Department of General Services
Director would be authorized to establish an evaluation factor in a
request for proposals that would award additional points for a
proposal from:
(1) a contractor for whom a goal
has
been set under the
MFD program; and
(2) a contractor for whom a goal has not been set who
proposes to exceed the minority owned business
procurement subcontracting goal established for the
contract.
The 2014 Disparity Study found a statistically significant
underutilization of some MFD groups in each procurement category
that can be attributed to discrimination in the marketplace. Although
the County's current MFD subcontracting requirement has increased
the utilization ofMFD finns, new ideas and remedies are necessary.
The goal is to authorize an additional tool to remedy the significant
underutilization of some MFD groups in County procurement.
County Attorney, Department of General Services
To be requested.
To be requested.
To be requested.
To be researched.
Robert
H.
Drummer, Senior Legislative Attorney
Not applicable.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENAL TIES:
None
f;\Iaw\bills\1448 purchases from minority owned businesses - request for pr
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ROCKVILLE, MARYLAND
MEMORANDUM
November 24,2014
TO:
Craig
Rice,~e
Jennifer
A.
Joseph F. Be
'n-
County Council
nagement
and
Budget
of Finance
FROM:
SUBJECT:
es, Direc
Director,
FEIS for Bill 48-14, Purchases from Minority
Owned
Businesses· Procedures­
Request for Proposals
Please find
attached
the fisca1 and
economic impact statements for
the
above-
referenced legislation.
.
JAH:fz
cc: Bonnie Kirkland,
Assistant
Chief Administrative Officer
Lisa Austin, Offices ofthe County
Executive
Joy
Nurmi, Special Assistant
to
the County Executive
Patrick
Lacefield; Director, Public Infonnation Office
Joseph F.
Beach, Director,
Department of Finance
David Platt,
Department
of Finance
Robert Hagedoom,
Department
of
Finance
David
Disc.
Director, Department of General
Services
Erika lopez-Finn, Office of Management and Budget
Alex Espinosa.
Office of
Management
and
Budget
Naeem Mia, Office of Management
and
Budget
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Fiscal Impact Statement
Council BiD 48-14,
Purchases from Minority
Owned
Businesses
Procedures -Request for Proposals
1.
Legislative Summary.
The legislation establishes an evaluation factor
in
a request for proposals (RPFs) to
increase participation ofminority o\\lned firms in certain procurement contracts and adds
additional tools, such as an evaluation factor of at least 10% but
110
more
than
20% of
total available points
to
requests for proposals for increasing the participation ofminority
oVvned
finns
in certain procurement contrdcts.
2.
An
estimate of changes in County revenues and expenditures regardless of whether the
revenues or expenditures are assumed in the recommended or approved budget. Includes
source of information, assumptions, and methodologies used.
The proposed legislation will not impact revenues and expenditures.
3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
The proposed legislation ",ill not impact revenues. Expenditures will only
be
affected if
contract prices are affected.
4.
An
actuarial analysis through the entire amortization period for each bill that would affect
retiree pension or group insurance costs.
The proposed legislation
will
not affect retiree pension or group insur'dIlce costs.
5. An estimate of expenditures related to County's information technology
(11)
systems,
including Enterp.rise Resource Planning (ERP) systems.
The proposed legislation will not impact expenditures related to
r1'
systems
6. Later actions that may affect future .revenue and expenditures ifthe bill authorizes future
spending.
The proposed legislation does not authorize future spending.
7. An estimate ofthe staff time needed
to
implement the bilL
1be Minority Female Disabled (MFD) program manager \\iH develop baseline
instructions on how to rate the MFD participation in the evaluation criteria for the
department Qualitications and Selection Committee (QSCs). DGS anticipates that at the
beginning of rolling out this requirement, the department QSCs will consult with the
MFD program manager on each solicitation.
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DGS received 143 proposals responding
to
RFPs in FY14. Assuming an average of3
proposals per week,
the
MDF program manager expects to spend 2 hours
per
proposal (or
six hours per week) in reviewing RFPs.
8.
An
explanation of how the addition ofnew staff responsibiHtieswould affect other duties.
The
availability
of existing staff for
these additional procurement
related
efforts would
entail a
lengthier process and delays
of
other types
of
procurement
actions
while
these
are
being researched and resolved.
9.
An estimate of costs when an additional appropriation is needed.
Not applicable.
10. A
description
of
any
variable that could affect revenue and cost estimates.
Not applicable.
11.
Ranges of revenue or expenditures that are uncertain or difficult to project.
Not applicable.
12. If
a
bill is likely to have no fiscal impact, why that is the case.
This bill result'\ in increased staff time which call
be
absorbed.
13. Other fiscal impacts or comments.
Currently, offerors
submit
MFD plans
by
the time the contract is signed. The proposed
legislation would require offerors to submit their MFD plans when they submit their
proposals. Submitting 1\1FD proposals earlier may limit the vendors' ability
to
obtain
more competitive pricing compared to later
submitting
in
the
procurementpmcess.
This
may
increase
the
upfront cost for the vendors, which may
be
passed on
to
the County in
the
form of higher bid prices.
Procurement and OBRC will need to further investigate whether a vendor was evaluated
and assigned points for later changes during negotiations .or before the award. There may
be
changes to the subcontractors' availability and costs, but the County's flexibility
would be limited since availability and costs would have to
be
finalized pri.or to
submissions
since evaluations are at
stake.
14. The following contributed
to
and concurred with this analysis:
Grace
Denno, Department of General Services
Angela
Dizelos, Department of General Services
Beryl Feinberg, Department of General Services
(j)
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Pam Jones, Department of General Services
Erika
Lopez-Fin~
Office of Management
and
Budget
~ughes.Dif
~(3¥4
)l/JaL-----l:4­
Date
Office of Management
and
Budget
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Economic Impact
Statement
Bill 48-14, .Purchases for Minority Owned Businesses - Procedures - Request for
Proposal
Background:
This legislation would establish an evaluation factor in a request for proposals to increase
participation of minority ov.-ned finns in certain procurement contracts and adds
additional
tool~
such
as
an evaluation factor of at least 10 percent but no more than 20
percent oftotal available points to requests for proposals for increasing the participation
of minority owned
firms
in certain procurement contracts.
Ac.cording to a County Council staffmemonmdwn dated October 11,2014, the 2014
Disparity Study found a statistically significant underutilization of some Minority.
Female. and Disabled
(MFD)
groups in each procurement category attributed to
discrimination
in
the marketplace. The County's current subcontracting requirement
increased
IYWD
utili7..ation and Bill 48-14 authorizes an additional tool to remedy the
statistically significant underutiIization of some
MFD
groups in County procurement
The Director ofthe Department of General Services (DOS) would establish an evaluation
factor in a request for proposaL
1.
The sources of information, assumptions,
and
methodologies used.
The Department of General Services
is
the source of infonnation. According to
DOS,
the Department receivt-'<.l143 proposals responding to Request for Proposal
(RFP)
in
fiscal year 2014. The economic impact
is
based on the increase in the numbt.'t of
p.roposals and awards to MFD groups attributed to the enactment of Bill 48-14.
However, since
the
evaluation factor has yet to
be
established by the Director of
DOS
and without specificity of
da~
the
actual
economic impact ofBi1l48-14 cannot
be
estimated
at
this time. Regardless ofthe lack of specificity, the intended goal of the
legislation
is
to remedy the underutilization ofsome MFD groups which would have
a positive effect on employment and business income by some MFD groups.
2. A description
of
any variable that could affect the economic impaet estimates.
The variable that could affect the economic impact is the evaluation factor in a
request for proposals.
3.
The
Bill's positive
or
negative
effect,
if any on
employment,
spending, saving,
investment,
incomes,
and property
values
in
the County.
As stated in paragraph
#
1, Bill 48-14 could have a positive effect on employment and
business income.
4.
If
a
Bill
is
likely to have no economic
.impact,
why
is
that the case?
See paragraph #3.
Page 1 of2
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Economic Impact Statement
BiIl48~14,
Purchases for Minority Owned Businesses - Procedures,.... Request for
Proposal
5. The following contributed to or concurred with this analysis: David
Platt
and
Rob
Hagedoorn, Finance.
Dat!
Department
off'inance
'
Page 2 of2
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WRITTEN TESTIMONY
SUPPORT BILL 48-14
HERMAN L. TAYLOR,JR
December 2, 2014
Dear Council President Leventhal and members of the County Council,
Thank you for the opportunity to testify in support of Bill 48-14, Purchases from
Minority Owned Businesses Procedures - Request for Proposals.
I am the President/CEO of DeskmateUSA a company that was founded 25 years ago
by me and my late mother Mrs. Dorothy
J.
Taylor; however, today I come before you
representing the Minority Business Economic Council.
The Minority Business Economic Council consist of small and mid tier minority
owned businesses from all across the county. We have come together to take
collective action and provide leadership and advocacy on the following core areas
which include; economic development, employment and education.
On July 30
th
the MBEC hosted over 400 companies interested in doing business with
Montgomery County in a town hall format. We have procurement officials as well as
Councilmember Leventhal and former councilmember Branson. As you would
expect, the attendees had a lot to say about the inequities that exist within contracting
in this county. But, they came away very impressed with the dedication of
Counci1member's Leventhal and Branson who stayed until the last person spoke.
Bill 48-14, would provide an important evaluation factor in the determination of
successful county prime contractors in order to achieve acceptable levels of Minority
Businesses participation.
The Minority Business Economic Council strongly encourages the passage of
this legislation in order to address the county's underutilization of MFD's.
MINORITY BUSINESS ECONOMIC COUNCIL
I
WWW.MBEC.ORG
IINFO@MBEC.ORG
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Testimony about Montgomery County
Bill 48-14
Concerning Procedures for Purchases from
Minority Owned Businesses and Requests for Proposals
December 2,2014
Presented by Timothy
J.
Fay
802 Argyle Road
Silver Spring, MD 20901
Phone: (301) 588-0778
Fax: (301) 589-0324
Email: tim@faycomm.com
Good afternoon.
I want to thank you for the opportunity to testify about Bill
48-14.
My name is Timothy Fay and I operated a small business in Montgomery County
from
1984
to
2008.
From
2008
to
2013
I served as Special Assistant to the Vice Chair of the U.S.
Commission on Civil Rights.
My testimony today reflects only my views and not those of any other person or
entity.
I wish to express my concern that in Bill
48-14
the County is proposing
contracting practices which do not offer all County businesses an equal opportunity to
bid on County contracts or subcontracts without regard to the race, gender, or ethnicity
of the business owner.
For example, I note that bill
48-14
"would permit an
evaluation factor
in a
request for proposals to increase the participation of minority owned firms in certain
procurement contracts."1 The bill would authorize the use of an "evaluation factor ... that
would award additional points" for contractors who have a minority subcontracting goal
and/or who promise to "exceed the minority business procurement subcontracting goal
established for the contract.,,2
Thus, bill
48-14
enshrines the use of racial targets and goals in the awarding of
County contracts or subcontracts for the purpose of "increasing the participation of
minority owned firms in certain procurement contracts.,,3
Memorandum to the Council from Robert H. Drummer, Senior Legislative Attorney, Oct. 17,2014
2
Same citation
:3
Same citation
1
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This practice will inevitably lead to awarding contracts or subcontracts that are
neither of the lowest cost nor the highest quality.
The two "evaluation factors" that are of most concern to your constituents and tax
payers, especially in this time of economic stagnation, are
cost
and
quality.
Other Ways of Addressing Underutilization:
There are nondiscriminatory measures that the County can undertake to ensure
that all qualified bidders have an equal opportunity to compete without regard to the
race, gender, or ethnicity of the business owner. In particular, I recommend to you a
report the U.S. Commission on Civil Rights published in 2005 that presented an
excellent discussion of race-neutral alternatives to using racial preferences:
• Enforce nondiscrimination and subcontractor compliance;
• Increase knowledge about opportunities to contract with the ... government;
• Provide education or technical assistance to improve business skills and
knowledge of [government] procurement and how to win contracts;
• Give financial assistance or adjustments to offset the difficulties struggling firms
encou nter; and
• Expand contracting opportunities and promote business development in
underutilized geographic regions.
These strategies are available to all businesses meeting size and income criteria,
and are therefore race-neutral.
4
The aim of race-neutral contracting alternatives is to correct and end
discrimination -- and not to achieve a particular percentage of contracting by any
particular racial group. Numerous judicial decisions make very clear that the desire to
achieve a particular racial mix for its own sake is not itself a compelling or important
government interest; that would be "discrimination for its own sake. This the Constitution
forbids." University of California Regents v. Bakke, 438 U.S. 265, 307 (Powell, J.); see
also Fisher, 133 S.Ct. at 241 9 ("[O]utright racial balancing ... is patently
unconstitutional.") (quotation marks omitted).
Rather, the use of preferences can be justified only if there is an interest beyond
such racial, gender and ethnic head-counting -- and that compelling interest in the
contracting context is ending racial discrimination. It is very unlikely that in 2014 the only
avenue open to Montgomery County to end presumed race discrimination (or mere
U.S. COMMISSION ON CIVIL RIGHTS, FEDERAL PROCUREMENT AFTER ADARAND 31 (Sept.
2005), available at http://www.usccr.gov/pubs/080505_fedprocadarand.pdf.
4
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disparities) in contracting is through "remedial" race discrimination. As Chief Justice
Roberts wrote in 2007, "The way to stop discrimination on the basis of race is to stop
discriminating on the basis of race."
Parents Involved in Community Schools v. Seattle
School District No.1,
551 U.S. 701,748 (2007).
Constitutional issues aside, any system that awards contracts on the basis of
race, ethnicity, or sex and to those other than the lowest cost, qualified bidder, will likely
cost Montgomery County and its taxpayers money, both in higher contract costs and
legal liability. A case-in-point is
Cleveland Construction, Inc. v. Cincinnati,
in which the
city awarded the contract for $1,246,022
more
than Cleveland Construction's bid simply
because the other bid included more minority subcontractors. The trial court held that
the city's race- and gender-based classifications violated the Equal Protection Clause of
the Fourteenth Amendment. The appellate court upheld the trial court's ruling, also
pointing out that:
In determining whether strict scrutiny must be applied ... we must look
behind its ostensibly neutral labels such as "outreach program" and
"participation goals." The program's rules and guidelines are not
immunized from scrutiny because they purport to establish "goals" rather
than "quotas." [Courts] look to the economic realities of the program rather
than the label attached to it.
5
In other words, "soft quotas," i.e., impermissible consideration of the race,
ethnicity or gender of bidders to meet an "aspirational goal," are just as problematic as
"hard quotas," i.e., mandating contract awards to business owned by particular groups.
Other significant cases from other jurisdictions show that Montgomery County will want
to think twice before using, or continuing to use, race and gender in awarding
contracts.
6
Discouraging Sham Pass-Through Companies:
Cleveland Constr., Inc. v. Cincinnati,
864 N.E.2d 116, 127 (Ohio App. 1 Dist. 2006) (quoting
Bras
v.
th
California PUb. Uti/so Comm'n,
59 F.3d 869, 874 (9 Cir. 1995)),
rev'd on other grounds,
888 N.E.2d 1068
~Ohio
2008),
cert. denied,
555 U.S. 1100 (2009).
See Associated General Contractors of Ohio v. Drabik,
214 F.3d 730 (6th Cir. 2000) (awarding public
construction contracts which gave preferences to bidders owned by racial or ethnic minorities violated the
th
Equal Protection Clause);
see also
W.H.
Scott Construction Co. v. City of Jackson,
199 F.3d 206 (5 Cir.
1999); Websterv. Fulton County,
51 F.Supp.2d 1354 (N.D. Ga. 1999). In 1998, Cuyahoga Community
College trustees were held not to be immune from personal liability for damages resulting from their
decision to impose an unconstitutional racial set-aside policy in contracting. See
F. Buddie Contracting,
Ltd. v. Cuyahoga Community Col/ege Dist.,
31 F. Supp.2d 584 (N.D. Ohio 1998). Also in 1998, Cincinnati
settled a lawsuit by the Ohio Contractors Association over Cincinnati's Minority Business Enterprise
(MBE) set-aside program. As part of the settlement, the city agreed to cut the 30% set-aside for MBE
firms to 5%.
See
Dohoney Memorandum at 3. In another 1998 lawsuit, this time brought by Ray Prius
&
Sons, Inc., over the constitutionality of Cincinnati's Equal Business Opportunity Program, the city agreed
to halt the program pending its evaluation and adopted an interim race- and gender-neutral program.
See
id.
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Other legal and constitutional issues aside, Bill 48-14 also provides powerful
incentives for prime contractors to find minority subcontractors at any cost. This often
results in the creation of "minority owned pass-through companies."
Here's how it works.
Let's say the prime contractor needs to purchase a quantity of drywall for the
contract. The prime already has a reliable and reasonably priced supplier of drywall who
is not minority owned. But the prime needs to add a minority subcontractor to its bid.
Therefore, the prime hires a minority firm to supply the drywall. The minority firm
buys the drywall from the same supplier the prime had previously used. The minority
firm purchases the drywall from the original drywall supplier and resells it to the prime
contractor at a 15% markup.
The prime could have purchased it directly from the old supplier for 15% less, but
the prime knows this is the cost of doing business in Montgomery County. The prime's
contract bid will receive "bonus points" or "evaluation points" from the County because it
hired a minority owned firm. The "evaluation points" the prime receives from the County
for inclusion of a minority subcontractor in its contract bid will offset the increased cost
of the minority pass-through company's 15% markup during evaluation of the prime's
bid.
The result is the prime pays 15% more for the material and passes the cost on to
the County which passes the additional cost on to the tax payer.
The reseller, i.e., the minority-owned pass-through company, does no useful
work but earns 15% on reselling the drywall to the prime contractor.
The pass through company also gains no useful business experience from the
transaction other than how to scam the County's minority preference program.
It is my hope the County has, or will have, a mechanism in place to strongly
discourage this deceitful practice and to penalize or even disbar firms engaging in it.
Conclusion:
Montgomery County's web site, as well as numerous documents and brochures
from the County, contain many declarations about equal opportunity. But guaranteeing
equal opportunity does
not
mean guaranteeing equal results or proportional
representation.
I sincerely hope that Montgomery County will take to heart its professed
commitment to equal opportunity regardless of the race, gender or ethnicity of contract
bidders and subcontractors. It is my hope that you will vigorously pursue obtaining the
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best value for the County's contracting dollar in a fair, competitive and race-neutral
manner.
Sincerely.
Timothy J. Fay
5
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FY13 MFD Utilization and Availabil
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FY14 MFD Utilization and Availabi
The availability of minority businesses is based on the 2005 Disparity Study conducted by Griffin & Strong, Inc.
• FY14's new disparity study data will update the availability numbers for the FYlS annual report
®