Though a windfall for many, DBE initiatives still face roadblocks

The U.S. spends hundreds of billions of dollars on its infrastructure each year, and good chunk of that money is required to go to disadvantaged business enterprises, also known as DBEs. But that process is fraught with risk, both for DBEs and those working with them, and it could become all the more so if the Trump Administration makes good on its promise to create a flood of jobs through a trillion dollars in infrastructure investment.

The requirements, launched in 1983, are intended to assist DBEs in participating in federal transportation projects. Today, all 50 states and Puerto Rico must set and adhere to their own DBE goals in order to receive federal transportation funding, but often, general contractors required to hire DBEs report challenges in locating the limited number of qualified contractors.

It’s not easy for DBEs, either. They say gaining the certification takes time, paperwork and continuing education, the rewards of which are uncertain, as government work is no guarantee. Often, it requires greater cash reserves than private sector work, as well as personal connections, knowledge of rules and regulations, and the ability to scale up—as quickly as the change orders come in.

General contractors, the good and bad

General contractors who must fulfill DBE requirements are aware of these challenges. And though many of them say they support the spirit of the measures, they can be crushing, and are further complicated by the fact that few businesses wish to appear critical of government jobs.

Upstate Electric, an electrical contractor in New York, the state with the highest minority-participation requirements in America, says it struggles to find enough qualified DBEs and MWBEs with pockets deep enough for large projects. MWBE is a designation used by non-federal agencies for minority- and women-owned business enterprises.

“We actually have to help our MWBEs right now … we have to front them the money,” says Rich Schwarzbeck, the company’s operations manager.

And stretching like that can break a business.

When Carlos Jaramillo got his DBE certification a few years ago, he was one of only three DBE-certified plumbers in New York City’s five boroughs. Within 24 hours of becoming DBE-certified, he got a call from a prime plumber working on the MTA’s Second Avenue Subway project. That contractor offered him a $1.8 million contract on the spot.

Jaramillo accepted, reluctantly. “I want to get my feet wet,” he told the prime contractor. “I don’t want to drown.”

Quickly, troubles mounted. When Jaramillo would submit requisition orders for $80,000, he’d only receive a check for $20,000 and be told to submit another requisition the next month, an experience not uncommon for government contractors.

The only thing that saved him, he says, was that the prime contractor defaulted. The prime’s bonding company asked Jaramillo to take over the full $10-million contract, giving him access to more funds. Two-and-a-half years later, his crew has grown from four to 25, and they are still completing that project.

DBEs lack access to capital

“There’s quite a bit of risk involved,” says Nancy Carin, executive director of Business Outreach Center Network (BOC), which among other things, helps DBEs navigate public contracts, pre-qualify to bid and secure funding. “You need to have a kind of a foundation or a plan for how you’re going to handle the cash flow aspect of the contract.”

DBEs completing their first public contracts often struggle to manage change orders, which on one hand can bring in additional funds, and on the other hand can take months to register, prolonging the payment cycle even further.

“There’s nothing more important when company’s coming into this [than] to get training about this business—from change orders, the acronyms, knowing what everything stands for, dates, packages, everything is just completely different,” says Everett Perry, owner of Urban Ecoscapes, a DBE general contracting firm in New York City.

Some agencies, including the New York City Metropolitan Transportation Agency (MTA), New York City School Construction Agency (SCA) and New York City Economic Development Corporation (NYCEDC) offer education and training.

“[But] even when they get good advice, there’s not always a bonding outlet available for them to bid the job,” says Philip Tobey, CEO at Bondex, which provides surety bond credit to contractors and emerging companies.

Not all drama

Not every DBE has a harrowing experience, but some feel that minority certifications don’t help much, either. Perry says the certification is less of a selling point for minority general contractors than it is for skilled trade contactors. He’s only seen a minor uptick in business since getting his certification.

“The more that we inform solid businesses, not just people trying to start from scratch today, that these opportunities may be very valuable to them over time, the better, because, in the past, there has been a lot of dissatisfaction with the whole MWBE, DBE, that whole certification.” – Nancy Carin, executive director of Business Outreach Center Network (BOC)

Still, Perry believes the DBE requirements—including those imposed by states and municipalities on top of federal ones, which are many—are a good thing.

“I think it’s good for New York City,” he says. “I think it’s good for everyone involved, ramping up, getting the folks who live here in the city a chance to do these jobs and work on these contracts.”

Since 2009, the U.S. Department of Commerce’s Minority Business Development Agency says it has helped minority-owned firms access more than $34.8 billion in contracts and capital, which resulted in more than 153,000 jobs created and sustained.

Those numbers matter at a time when disadvantaged individuals continue to face hurdles, even those registered as DBEs.

In December 2016, the agency released a report that found among MBEs, 86 percent struggle with networking barriers, 83 percent struggle to meet bonding requirements, 78 percent struggle to receive timely payments and 77 percent lack access to the capital necessary to take on the contracts they bid.

Plenty of work to go around

Even before Trump announced his intention to add public infrastructure spending—a plan which appears to have been pushed off until 2018—there seemed to be plenty of work in the pipeline. The Recession in the rearview mirror, “We’re seeing a lot of bid activity all across the board,” Tobey, the Bondex CEO, says.

In the Catskills region of New York, Upstate Electric is one of the contractors working on the Montreign Resort Casino. When construction is in full swing, that project will have between 300 and 400 electricians on site. And in Queens, New York, LaGuardia Airport is being rebuilt through an $8 billion project, anticipated to be completed by 2021.

“The more that we inform solid businesses, not just people trying to start from scratch today, that these opportunities may be very valuable to them over time, the better, because, in the past, there has been a lot of dissatisfaction with the whole MWBE, DBE, that whole certification,” Carin says.

And plenty of minority firms have capacity and are seeking opportunities to get involved, she says. The frustration on their end is getting the doors to open.