CINCINNATI – When Angela Denmark signed a “master agreement” with the city of Cincinnati in July 2012, she expected the contract to help her one-woman court reporting agency grow into the thriving small business she wanted it to become.
Instead, Denmark has earned less from the city than she did in the year before she won the contract. And she has watched a larger competitor get work she thought would be hers.
“It just turned into a big, fat mess,” Denmark said. “I suffered financial devastation.”
Denmark calls her experience a “cautionary tale.” Other observers say the story helps explain why many local women and minority business owners don’t bother trying to get work with the city.
“What I say to people is you need to hunt where the hunting is good,” said Howard Elliott, president of Elliott Management Group, a local company that consults with organizations about supplier diversity. “As we look at the city, for most of these minority- and women-owned businesses, the city isn’t a good place to hunt.”
The city of Cincinnati has been under fire since 2009 for its track record when it comes to awarding contracts to women and minority business owners.
In 2013, for example:
• Small businesses owned by white women got $11.2 million in contracts from the city, or about 4.6 percent of total city spending, according to the city’s most recent report dated March 7, 2014.
• The city spent about $5.3 million with small, black-owned businesses during that same time frame, or about 2.1 percent of the total.
• Totals for Asian- and Hispanic-owned companies were even lower. Spending with Asian-owned companies amounted to less than 1 percent, and the $22,500 spent with Hispanic-owned firms barely registered in the city’s total spending of $246 million.
City Results Aren’t Black And White
But the city’s results are far more nuanced than those percentages imply.
As much as advocates want to see women and minority business owners get more work with the city, Cincinnati has what is known as a Small Business Enterprise, or SBE, program that is race and gender neutral.
That means women and minorities can’t legally get special preference when it comes to awarding city contracts. Instead, the city targets spending with companies that are certified as SBEs, based on the size of the companies and the net worth of their owners.
By that measure, the city is meeting its targets pretty well. City council’s adopted goals are to spend:
• 30 percent of total construction expenditures with SBEs;
• 15 percent of total professional services expenditures with SBEs;
• And 15 percent of the total spent on supplies and services with SBEs.
During 2013, the city reached two of those goals, awarding a total of $32.3 million, or 30.4 percent, of construction contracts to SBEs and nearly $4.7 million, or 17.8 percent, of professional services contracts to SBEs.
The city spent $3.8 million, or 10.2 percent, of its overall expenditures for supplies and services with SBEs. Across the board, most of those contracts went to small companies owned by white men.
“The way I explain it is the city has a fruit program. We are collecting fruit,” said Rochelle Thompson, the city’s contract compliance officer. “But say somebody likes strawberries, and strawberries are good. For some reason we don’t have a lot of strawberries, and people get frustrated with that. But we have a fruit program.”
Cincinnati officials have been taking steps in recent years to make it easier for women and minority business owners to do work with the city.
Consultant Steve Love has been working with Thompson and purchasing officials to implement recommendations of the OPEN Cincinnati task force formed in early 2009 to study the city’s minority contracting results.
For example, the city is working to break contracts into smaller pieces to make it easier for small, minority- and women-owned businesses to bid on them, said Michael Cervay, Cincinnati’s finance manager and city purchasing agent.
The city municipal code also now has provisions to try to steer more work to SBEs.
For purchases valued at less than $5,000, for example, a city department can buy a product or service without a competitive bid, Cervay said. The city code requires that departments buy those materials or services with a certified SBE if there is one registered with the city that can do the job.
For expenditures between $5,000 and $50,000, the code instructs city departments to get two quotes from SBEs and then take the lowest and best quote.
If there is only one SBE that can provide the service, a department official is supposed to get two other quotes from larger companies. If the SBE doesn’t provide the winning quote, the city official is supposed to give the small business owner the opportunity to match the low quote to win the business, Cervay said.
System Doesn’t Always Get Intended Results
Even with those policies in place, however, certified SBEs don’t always get the work.
Her DCR Denmark Court Reporting Agency, LLC, won a “master agreement” on July 31, 2012 to provide court-reporting services for a number of city departments.
In theory, the contract goes through July of this year and is renewable after that.
But Denmark hasn’t gotten any work from the city for months, she said. The work she did receive amounted to a small fraction of the $15,549 the contract estimated she could earn in the first 12 months of the agreement.
Not only that, Denmark learned some city departments were calling her larger competitor, Elite Reporting Agency, LLC, which is not listed as a certified SBE in the city’s SBE directory.
Denmark called various city officials for weeks to try to figure out the problem. She eventually learned the City Solicitor’s office wasn’t happy with some of her work. But no department ever filed a formal complaint about her performance, Thompson said.
“We’ve used her, and we didn’t have any problems with her company or with her service,” Thompson said of her own department. “But that was our experience.”
Cervay said the city is spending less generally on court reporting services, which probably resulted in less business for Denmark.
He also noted that the city’s contracts clearly state that dollar amounts are estimates and can be higher or lower than the figures stated.
But Denmark said she thought the numbers were based on historical use and that she would at least make as much as she had from the city in previous years, before she had a contract.
“It was just so strained,” Denmark said. “I’m a one-person operation. I’m trying to build my business. I’d hoped this contract was going to bring some money into my business.”
Denmark had even rented office space a few blocks from City Hall to make it easier to service the city contract. The lack of city work caused her to fall behind on those lease payments, she said, leaving her business worse off than before she got the contract.
“I do believe it’s deliberate,” she said. “But I don’t understand why. I really don’t understand why.”
Cervay noted that not every department was required to use Denmark’s company under the terms of her contract.
Still, the city code requires that expenditures valued at less than $5,000 should be made with certified SBEs when one is able to do the work.
When asked why that didn’t come into play with other departments’ use of court reporting services, Cervay replied, “I am not familiar with that situation.”
Another Business Owner’s Story
Denmark is not the only small business owner who is frustrated.
Eric Ruffin has been trying for more than 10 years to get city work for his ABEL Building Systems. ABEL is a certified SBE that sells fire alarms, security systems and other electronic monitoring devices.See photo
Ruffin has gotten some work with the city in recent years, and he said he’s grateful for that. In fact, he said, this past year was his best ever with the city.
But a big contract with the city to monitor, install and maintain alarm systems remains elusive.
Here’s what happened: The city’s Division of Purchasing issued an invitation to bid on the contract in March 2012. Ruffin’s company got the invitation. But in the past, such contracts have included a performance bond requirement, which had always made Ruffin’s bids much higher than those offered by his larger competitors. Larger companies, based on their sheer size, typically get better bonding rates than smaller firms. So, based on his past experience, Ruffin didn’t bid.
As it turns out, this contract waived that bond requirement, which Ruffin acknowledged he didn’t notice in the city’s paperwork.
Dial One Security Inc. was the only company to bid on the contract and won it.
The estimated value of the contract was $89,148 per year. But it ended up being far more valuable, with Dial One earning more than $400,000 from the contract over the past two years so far.
Cervay said that’s another example of the dollar amount in the contract being an estimate. But in this case, the city ended up needing more services from Dial One than originally expected, making the contract far more valuable than expected.
The contract does require Dial One to make its "best efforts" to use SBEs as subcontractors for the city, Cervay said. Ruffin said the larger Dial One has never reached out to his company to do any of that work.
The contract was up for renewal this past April. Ruffin asked city officials to give his company an opportunity to bid on it instead of automatically renewing with Dial One.
In a memo to Mayor John Cranley and members of city council, Interim City Manager Scott Stiles recommended that the city renew its contract with Dial One for a final 12-month term.
The memo also stated: “Administration will continue to apply the lessons from the OPEN Cincinnati Task Force intended to structure a new bid for these services in a manner to secure multiple vendors for smaller portions of these contracts.”
‘What Is The Common Denominator?’
Ruffin doesn’t understand why the whole thing needs to be so complicated.
He understands city officials don’t want to get sued, and he figures that is part of the reason they are so careful in their dealings with big corporations.
But, he wonders, why would the city work so hard to change policies and contract language to attract more small businesses and then not let those businesses know more clearly that the changes have happened?
“This city has learned to act like they want minority participation,” Ruffin said. “I refuse to believe that this is prejudice because I just don’t want to live my life like that. But what is the common denominator here? I don’t know.”
A new task force is in place to try to answer that question.
In February, Cranley announced the creation of the Economic Inclusion Advisory Committee, comprised of business and religious leaders and economic inclusion experts. Ruffin is a member of the committee.
The goal of that group is to figure out ways to improve the city’s minority contracting program.
In an emailed response to WCPO, Cranley said Denmark’s case is a prime example of why the group is needed.
“These anecdotes are far too common, which is why we’re changing our policies,” he said in an email. “It will take a while to completely revamp the way we do procurement in this city.”
The city also has hired a California-based consultant to conduct a disparity study, known as a Croson study, to determine whether a pattern of discrimination exists in the way the city awards contracts. The findings of that study will determine whether the city can use race and gender to help determine which businesses get awards instead of the current SBE program that is now in place.
To Ruffin, the answer should be simple:
Each product or service that the city purchases has a commodity code attached to it.
Every company that does business with the city lists the commodity codes it can provide.
When city employees are making purchases for less than $5,000 or are calling to get competitive quotes for purchases valued between $5,000 and $50,000, why don’t they search the city’s vendor list to figure out if any SBEs have those codes associated with their businesses?
“Do we really need a task force for somebody to associate a number with me and call me and ask for a price?” Ruffin said. “Do we? That’s a sad commentary.”
Cervay acknowledged that city employees are supposed to check on whether SBEs provide the commodity codes they need before making purchases.
The purchasing department is retraining other departments in those procedures, he said.
“We’re dealing with human beings, and memories fade with time,” Cervay said. “And so we’re recognizing that reality, and we’re getting out there.”
For his part, Elliott said the city appears to have little in place to “strongly encourage” city departments to do business differently than they have for years. That, he said, doesn’t bode well for local women and minority business owners.
“There’s been a few people who have been successful but a lot more that haven’t,” he said. “For me, the city just has a dismal record.”
For more stories by Lucy May, go to www.wcpo.com/may. Follow her on Twitter @LucyMayCincy.