Agenda Item 7
June 21,2016
Public Hearing
MEMORANDUM
June 17,2016
TO:
County Council
FROM:
Robert H. Drummer, Senior Legislative Attorney( )
SUBJECT:
Public Hearing:
Bill 20-16, Purchases from Minority Owned Businesses ­
Enforcement of Subcontracting Plan - Request for Proposals - Amendments
Bill 20-16, Purchases from Minority Owned Businesses - Enforcement of Subcontracting
Plan - Request for Proposals - Amendments, sponsored by Lead Sponsor Councilmember Rice
and Co-Sponsors Councilmembers Leventhal, Navarro, Vice President Berliner, Councilmembers
EIrich, Hucker, Katz, Riemer and Council President Floreen, was introduced on May 17,2016. A
Government Operations and Fiscal Policy Committee worksession is tentatively scheduled for
June 30 at 9:30 a.m.
Background
Bill 20-16 would clarify the method ofawarding points for an evaluation factor in a request
for proposals to increase the participation ofminority owned firms in certain procurement contracts
and require a liquidated damages clause for failing to comply with a minority owned business
subcontracting plan.
Bill 48-14, Purchases from Minority Owned Businesses - Procedures - Request for
Proposals, was enacted on April 14, 2015 and signed into law on April 22, 2015. Bill 48-14
authorized the addition of an evaluation factor in a request for proposals to increase the
participation of minority owned firms in certain procurement contracts. The Director ofthe Office
of Procurement is authorized to establish an evaluation factor in a request for proposals that would
award additional points for a proposal from:
(1)
(2)
a contractor for whom a goal has been set under the MFD program; and
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 implementation of Bill 48-14 by the Executive has resulted in situations where a non­
MFD prime contractor who agrees to subcontract more than the minimum MFD subcontracting
goal can earn more points under this evaluation factor than an MFD prime contractor. This
interpretation of the law by the Executive conflicts with the underlying purpose of Bill 48-14 - to
increase the number of MFD primes awarded these contracts. Bill 20-16 would clarify the intent
of this provision by requiring an MFD prime to be awarded the maximum number of points for
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this evaluation factor and a non-MFD prime who agrees to subcontract more than the minimum
MFD subcontracting goal less than the maximum points.
Bill 20-16 would also require a contract with an MFD subcontracting goal to also include
a liquidated damages clause for a contractor who fails to comply with an approved MFD
subcontracting plan without a waiver. Under current law, a liquidated damages clause is optional.
The Purpose
of Bill 48-14
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 of the work to MFD firms. Since the
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 affirmative 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 determine if there exists a statistically significant
disparity between the number of available MFD firms in the relevant market and the number of
MFD firms 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 determination 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% of the firms contracting
with the County are located. Within each relevant market, GSPC compared the percentage of
firms in each race, ethnicity, gender, and disability group that are qualified, willing and able to
perform services used by the County with the percentage of dollars spent by the County on firms
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 firms
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/cat/services/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 firms were underutilized
in
each procurement category each
year of the study. GSPC concluded that the "evidence suggests that absent affirmative measures
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the County would be a passive participant in a pattern of exclusion ofMFD 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
l ,
but the MFD program has
concentrated on mandatory subcontracting. DGS found that in FY14, MFD finns submitted only
32% of the bids, but received an award 57% of the time they bid.
In
contrast, non-MFD finns
submitted 68% of the bids, but received an award only 42% of the time they bid. Here are the
FY14 statistics from DGS:
FYl4 prime minority contractors responses and awards
#
of bids/proposals %of
submitted
bids/proposals
submitted
Non-MFD
208
68% (208/305)
African American
Hispanic American
Asian American
Native American
Female
Persons with
Disabilities
25
28
8
0
27
9
8%
9%
3%
0%
9010
3%
#
of Awards
% of awards resulting from
submitted
42% (881208)
88
7
19
5
0
16
4
28%
68%
63%
0%
59%
44%
Total MFD
Total
97
305
32%
100%
51
139
57% (51/97)
47%
Therefore, part of the remedy for the statistical underutilization may be increasing the
number of MFD finns that bid on County contracts. Bill 48-14 was enacted as an additional tool
that could be used to directly increase the number of MFD finns bidding and ultimately winning
awards of County contracts. Bill 20-16 would encourage MFD finns to bid on these contracts by
ensuring that an MFD finn would receive the maximum points for this evaluation factor.
This packet contains:
Bill 20-16
Legislative Request Report
Circle #
1
6
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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.
3
1
Many
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Bill No.
20-16
Concerning: Purchases from Minoritv
Owned Businesses - Enforcement of
Subcontracting Plan - Request for
Proposals - Amendments
Revised: May 24,2016 Draft No.
Introduced:
May 17, 2016
Enacted:
November 17, 2017
Executive: _ _ _ _ _ _ _ __
Effective: -:----::-:--_ _ _ _ _ __
Sunset Date: --:..;.No=n:::e'-:----:-::--_ _ __
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
Lead Sponsor: Councilmember Rice
Co-Sponsors: Councilmembers Leventhal, Navarro, Vice President Berliner, Councilmembers
EIrich, Hucker, Katz, Riemer, and Council President Floreen
AN
ACT to:
(1)
(2)
(3)
clarify
the method of awarding points for an evaluation factor in a request for
proposals
to
increase the participation ofminority owned firms in certain procurement
contracts;
require a liquidated damages clause for failing to comply with an approved minority
owned subcontracting plan; and
generally amend the County's minority owned business purchasing program.
By amending
Montgomery County Code
Chapter lIB, Contracts and Procurement
Section 11 B-60
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Addedto 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 thefollowing Act:
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BILL
No. 20-16
1
Sec. 1. Section IIB-60 is amended as follows:
IIB-60. Procedures.
(a)
By September 30 of each year, the ChiefAdministrative 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 ofpurchases made during the previous fiscal year from that
group in each category of purchases under a particular source selection
method, compared with the availability ofthat group to perform work in
that category, shows a significant under-utilization ofthe group.
(b)
The Chief Administrative Officer must adopt procedures to certifY and
decertifY minority owned businesses.
(c)
The Office ofProcurement must publicly notifY businesses ofprospective
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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BILL
No.
20-16
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(l)
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;
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(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;
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(4)
contract requirements that minority owned business participation
goals be maintained by prime contractors throughout the life ofthe
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
(8
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BILL No. 20-16
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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] and 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
finding the contractor non-responsible for pwposes of
future procurements with the County during the next 3
years; and
(5)
an evaluation factor with a value of no more than 10% of the total
available points in a request for proposals issued wider Section
IlB-I0 awarding [additional points for a proposal from]:
(A)
the maximum points for a contractor for whom a goal has
been set under subsection (a); and
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BILL
No. 20-16
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(B)
less than the maximum points for 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.
*
Sec. 2. Transition.
*
*
The amendments in Section 1 apply to any contract awarded after the date this
Act takes effect.
Approved:
87
88
89
Nancy Floreen, President, County Council
Date
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Approved:
Isiah Leggett, County Executive
Date
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This is a correct copy ofCouncil action.
Linda M. Lauer, Clerk of the Council
Date
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LEGISLATIVE REQUEST REPORT
Bill 20-16
Purchases from Minority Owned Businesses
-
Eriforcement ofSubcontracting Plan
-
Request for
Proposals
-
Amendments
DESCRIPTION:
Bill 20-16 would clarify the method of awarding points for an
evaluation factor in a request for proposals to increase the participation
of minority owned firms in certain procurement contracts and require
a liquidated damages clause for failing to comply with a minority
owned business subcontracting plan.
The implementation of Bill 48-14 by the Executive has resulted in
situations where a non-MFD prime contractor who agrees to
subcontract more than the minimum MFD subcontracting goal can
earn more points under this evaluation factor than an MFD prime
contractor. This interpretation of the law by the Executive conflicts
with the underlying purpose ofBi1l48-14 - to increase the number of
MFD primes awarded these contracts.
The goal is to increase the number of contracts awarded to MFD
primes to remedy the effects of past discrimination.
Procurement, County Attorney
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:
PENALTIES:
Contractual penalties.
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