Minority business executives hope changes in a state contracting program will open new opportunities for them, but nonprofits fear collateral damage.
House Bill 48 — one of three bills filed by Del. Barbara Robinson (D-Dist. 40) of Baltimore under review by the House Health and Government Operations Committee — would remove nonprofits from consideration for set-asides under the Minority Business Enterprise program. The committee read the bills this month and has scheduled a hearing at 1 p.m. Feb. 6.
Minority-owned business advocates have long challenged the state’s reporting of MBE participation, saying that including nonprofits that deal with developmentally and physically disabled people skews the results. The state’s Department of Transportation is responsible for certifying a business as an MBE.
Maryland procurement agencies overall contracted 23.8 percent, or more than $1.64 billion, of their work with minority-owned businesses in fiscal 2011, according to the Governor’s Office of Minority Affairs. Cabinet procurement agencies achieved 24.2 percent, and Statestat reporting procurement agencies achieved 26 percent.
This is the highest level ever during the program’s history; its goal is 25 percent. About $478 million of the 2011 amount, or 29.1 percent, went to certified nonprofits and community service providers.
“It overstates what the agencies have actually done,” said Wayne Frazier, president of the Maryland Washington Minority Contractors’ Association.
Frazier said that while he does not want the government to hurt nonprofits, he would prefer to see them have their own separate program and not be included as MBEs.
HB 48 would prohibit the state from counting nonprofit participation toward the state’s MBE goal and exclude them from being eligible for MBE contract set-asides. Nonprofits that receive contracts through the MBE program before July 1 would be allowed to finish their contracts. A similar bill to adjust the way nonprofits are counted was also submitted last legislative session, but it received an unfavorable report from the House committee.
“A nonprofit does not qualify for MBE certification just by the sheer definition of MBE,” Robinson said.
The state defines a minority business enterprise as a business that is organized to engage in commercial transactions, is at least 51 percent owned and is controlled by at least one socially and economically disadvantaged person who manages and handles the daily business operations.
Robinson said nonprofits can draw on numerous outside resources unavailable to commercial businesses. This disadvantage “cripples” MBEs competing with nonprofits for contracts, as nonprofits can get free space, property and staff donated to them, sometimes as a tax write-off.
Robinson has been a minority business owner for 30 years. She owns Star Associates, a human resources company in Baltimore.
LaVerne Johnson Reynolds, owner of Security Education Environmental Design Services in Temple Hills, said she has fought hard for contracts, being both black and a woman, so she understands having a vested interest in profit.
“It’s not the same for nonprofits. They shouldn’t be in the same arena as MBEs,” she said. “They should have their own category.”
Robinson said nonprofits also have their own procurement preference areas that MBEs cannot use.
“Drive in your own lane,” she said.
Nonprofit advocates acknowledge that the current system skews the results and welcome revisions, said Henry Bogdan, managing director of public policy and public affairs for Maryland Nonprofits, the industry’s advocacy group in Maryland. But officials need to ensure these revisions do not come at the expense of nonprofits, he said.
His group has been working with state officials to come up with ways to improve the program to everyone’s benefit, he said.
“We don’t need this bill in order to change the way you count these things,” Bogdan said. “We’re hopeful that one way or another, something can be worked out.”
Officials at Melwood, an Upper Marlboro nonprofit that provides employment opportunities and support for people with disabilities, also are concerned that the bill would take away opportunities, said chief program officer Jonathan Rondeau.
“I understand the reason we were originally included may not have been the right reason, but we don’t want those opportunities taken away now that they’re in place,” Rondeau said. “It’s removing another avenue for us to create employment opportunities for this minority.”
Melwood does not contract under the MBE program, but it hopes to, Rondeau said. The nonprofit employs 700 people in 40 contract areas.
Zenita Wickham Hurley, special secretary to the Governor’s Office of Minority Affairs, weighed in on the bill.
“I believe removal of non-profit organizations from Maryland’s MBE Program would benefit the program overall, as long as this action is accompanied by legislation or policy that supports the continuation of State procurement opportunities for this specialized group of organizations who work so hard to serve the needs of our citizens with physical and mental disabilities,” she said in an email to The Gazette.
Robinson also has introduced House Bill 24, to ensure state agencies authorize payment to a prime contractor within 30 days after completion of work involving MBE participation. It also would require the Board of Public Works to work with the governor’s office to establish a process to monitor the timeliness of payments.
Reynolds said she has waited up to 100 days to get paid while subcontracting for the state and has a client that waited more than two years for payment.
“They know we don’t have the resources to come after them and sue,” she said about the prime contractors.
Robinson’s third bill, HB 26, has drawn more mixed responses from the minority-owned business community. It would require the Board of Public Works to allow minority business owners to use years of experience they gained while with a previous company that contracted with the state to help qualify for prime contracts for their current company. Many prime contracts carry experience requirements that are difficult for minority-owned businesses to meet, Robinson said.
Jay McElroy, owner of McElroy Enterprises, a small-business vetting and training company in Upper Marlboro, disapproves of the bill, saying businesses that are using previous company experience do not have the right to win prime contracts because they have not earned it through the business they own.
Frazier also disapproved, saying businesses should first prove that they are responsible enough to handle a prime contract.