Cincinnati business leaders call for changes in city's minority contracting program

'Not reached an acceptable threshold'

CINCINNATI - When it comes to the city of Cincinnati’s record of doing business with companies owned by women and minorities, this much is clear: The city’s results are far weaker than advocates of economic inclusion want to see.

In the first quarter of this year, for example, the city spent roughly $1.7 million with companies that identified themselves as black-owned businesses, according to figures the city compiles.

That amounts to roughly 2.4 percent of the nearly $73 million spent in a city with a population that is 44.8 percent black, according to 2010 Census results.

The city spent nearly $2.7 million with businesses owned by white women, amounting to roughly 3.7 percent of the total. And companies owned by Hispanics and those owned by Native Americans got no contracts with the city in the first quarter of this year.

“The only number that really matters is what percentage of the total spend is going to minority businesses. Period,” said Sean Rugless, CEO of the Greater Cincinnati and Northern Kentucky African American Chamber of Commerce. “Minority business contracting has not reached an acceptable threshold in which we would say we no longer have an issue.”

Nationwide, cities with successful economic inclusion programs award between 15 percent and 20 percent of their contracts to minority-owned companies, Rugless said, but Cincinnati’s results are still less than 5 percent with all minority groups lumped together.

City officials argue the government’s percentages are artificially low since women- and minority-owned businesses aren’t required to identify themselves that way when doing business with the city, and some minority- and women-owned firms who do have contracts aren’t counted as a result.

But advocates for economic inclusion say even if the figures are a bit understated, they’re far too low. And, they insist, the results should matter to everyone.

Here’s why: Businesses owned by minorities typically hire more minority workers, said Crystal German, vice president of the Minority Business Accelerator and economic inclusion at the Cincinnati USA Regional Chamber. And locally, the unemployment rate among minorities is roughly twice that of white residents, Rugless noted.

So as minority-owned businesses grow, employment among minorities should increase, too, which expands the tax base and helps the region become stronger as a whole, German and Rugless said.

“We will rise and fall with the success of minority business,” Rugless said.

There’s also the issue of parity, German said. The small number of minority- and women-owned companies that do business with the city doesn’t reflect the business community as a whole, she said.

The Greater Cincinnati region has roughly 162,000 privately held businesses, according to the 2007 Economic Census, the most recent data available. Roughly 9 percent of those companies are owned by minorities, and women own about 30 percent, according to an analysis by market research firm LaVERDAD for WCPO.

Those overseeing the city’s efforts say the government’s spending totals reflect the fact that Cincinnati’s contracting program isn’t designed to steer work to women and minority business owners.

Rather, the city has a Small Business Enterprise, or SBE, program that is “race and gender neutral.” The program has been that way for more than a decade because legal challenges forced the city to remove race and gender as selection criteria. There are 434 businesses that are certified SBEs with the city.

 “It’s almost as if the city was collecting apples in a park and that was our target. And sometimes we get to a part of the park where there’s an orange tree, and we pick up a few oranges because they were there,” said Rochelle Thompson, the city’s contract compliance officer.

“And then we get criticized because we didn’t get enough oranges when that wasn’t the target of our program.”

The SBE program is designed to ensure that a portion of city contracts is awarded to small businesses located in Hamilton County to keep those dollars local – not to steer work to women- and minority-owned firms.

Candidates For Mayor Raise Concerns

Earlier this month the city’s minority contracting track record became an issue in Cincinnati’s mayoral race.

Former Councilman John Cranley, a leading candidate, on July 12 unveiled a plan for economic and minority inclusion. In it, he argued that a stronger program is key to building and expanding the city’s African American and Latino middle classes.

Vice Mayor Roxanne Qualls, the other leading candidate in the race, quickly countered that she, too, has been working to try to change the city’s program, which she also has argued is critically important for the same reasons.

Both have advocated for the city to pay for a new disparity study, known as a Croson study, which would determine whether discrimination still exists in the way the city awards contracts. If the study finds that to be the case, Cincinnati could legally award contracts to companies based on gender and race.

Such studies cost anywhere from $450,000 to $1 million, and council hasn’t approved the expense.

“To me, unless the city specifically votes to approve and implement a program specifically for minority and women businesses, it will not achieve the results people want to see,” said Steve Love, president of SRL Consulting and a former president of the Greater Cincinnati and Northern Kentucky African American Chamber of Commerce.

That’s why Love and Rugless have been advocating for a Croson study, too.

Issue Has Been A Problem For Years

The issue is far from new.

The city’s SBE program came under fire in 2009 after a series of disappointing reports that prompted the NAACP Cincinnati chamber to take a vote of “no confidence” in Mayor Mark Mallory’s leadership that year.

Mallory appointed a group called the OPEN Cincinnati task force in March 2009 to study the issue and come up with recommendations to improve the city’s results.

The OPEN report  was released later that same year. The city implemented some of those recommendations right away, but others languished.  

For the last year and a half, though, a team of consultants has been working to implement the rest of the OPEN Cincinnati recommendations and improve the city’s results.

The team consists of Love; Jim Clingman, founder of the African American Chamber and the Cincinnati NAACP’s economic development chairman; and Zola Stewart, co-founder and CEO of Focus Solutions, a staffing and workforce development firm.

In cooperation with the city’s contract compliance staff, the team has:

• Worked with city departments to help them set their own internal contracting goals;

• Encouraged departments to host outreach events for small businesses when they know they have big contracting opportunities coming up

• Helped the city streamline its certification process so that if a company already is certified through either the federal Small Business Administration or Ohio’s EDGE program, which is the state’s program for awarding contracts to minority-owned businesses, it’s easy for those companies to become certified with the city, too.

Mike Robinson, president of local market research firm LaVERDAD, said even after that change, though, the certification process with the city was still cumbersome for his company. LaVERDAD is state-certified and Hispanic-owned. The city even conducted a site visit.

“If that was much easier, I really would fear the normal process,” Robinson said. “Doing business with government entities as a small business, in my experience, is sometimes so painful, it’s often best avoided.”

‘It’s A Size Issue’

Nonetheless, the changes have helped boost the results for the city’s SBE program, which looks at how much work the city awards to certified Small Business Enterprises in Hamilton County.

For the first quarter of this year, 24.5 percent of the money the city spent with Hamilton County businesses went to certified SBEs.

Broken down by categories, that amounts to 31.6 percent spent on construction contracts, 15.4 percent on professional services contracts and 9 percent for supplies and services.

As a portion of total spending, regardless of a company’s location, the city spent 17 percent with certified SBEs.

Love is confident other changes could help boost the numbers even more.

One change, for example, will impact SBEs who are competing against larger companies for city contracts valued between $5,000 and $50,000.

Under the new rules, small companies will get a chance to match the larger companies’ bids of those bids are lower. If the SBEs can match the low bid, they will get the work, Love said.

While that sounds good to ABEL Building Systems owner Eric Ruffin, he said it won’t solve the city’s problems.

ABEL sells fire and smoke alarm systems, among other products. Ruffin said big companies typically submit low bids on equipment – so low that they lose money – because they sell systems that only those companies can service and inspect. That means the big companies make up the loss over the life of the products they sell, he said.

Ruffin argues that, as a smaller business with less overhead, he can do that same work over the life of a system for less money. But that’s typically not the way the city seeks bids so he has a difficult time making that case.

He said the people working to fix the problem should seek input from the city’s small business owners to find strategies that will work even better.

“It’s not a race issue. It’s a size issue,” Ruffin said. “We have to not make this a race issue and make this a business issue. And it will happen.”

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