2017 MINNESOTA JOINT DISPARITY STUDY Independent MnDOT... · 2019-07-16 · The 2017 Minnesota Joint Disparity Study examines whether there is a level playing field for minority-

2017 MINNESOTA JOINT DISPARITY STUDY Minnesota Department of Transportation Draft Report

Prepared for: Minnesota Department of Transportation 395 John Ireland Blvd St. Paul, MN 55155-1800

Prepared by: Keen Independent Research LLC 100 Fillmore Street, 5th Floor Denver CO 80206

701 N. 1st Street Phoenix AZ 85004

172 N. Washington Street Wickenburg AZ 85390

DRAFT REPORT January 29, 2018

KEEN INDEPENDENT RESEARCH MINNESOTA DEPARTMENT OF TRANSPORTATION DRAFT 2017 MINNESOTA JOINT DISPARITY STUDY TOC, PAGE I

TABLE OF CONTENTS

EXECUTIVE SUMMARY

A. Background on the Study ............................................................................................................. ES-1 B. Disparity Study Research Activities .............................................................................................. ES-2 C. Quantitative and Qualitative Information for the Minnesota Marketplace ................................ ES-4 D. Disparity Analysis ......................................................................................................................... ES-4 E. Recommendations ....................................................................................................................... ES-8 F. Public Participation in the Disparity Study ................................................................................. ES-11

CHAPTER 1. INTRODUCTION

A. Study Team .................................................................................................................................... 1-2 B. Disparity Study Analyses and Organization of the Draft Report .................................................... 1-3 C. Public Participation in the 2017 Joint Disparity Study ................................................................... 1-6 D. Public Comment Process for the 2017 Joint Disparity Study Report ............................................. 1-7

CHAPTER 2. LEGAL FRAMEWORK

Minority Business Enterprise (MBE) and Women Business Enterprise (WBE) Programs ..................... 2-1

Other Targeted Business Programs ....................................................................................................... 2-2

Local Business Programs ....................................................................................................................... 2-3

CHAPTER 3. PROGRAMS OPERATED BY MNDOT AND OTHER ENTITIES

A. MnDOT Implementation of Programs.......................................................................................... 3-1 B. Other Federal, State and Local Government Programs ............................................................... 3-2 C. Business Assistance and Other Programs in Minnesota .............................................................. 3-2 D. Reported TGB and VET Participation ........................................................................................... 3-3

CHAPTER 4. MNDOT CONTRACTS

A. Overview of MnDOT Contracts .................................................................................................... 4-1 B. Collection and Analysis of MnDOT Contract Data ........................................................................ 4-2 C. Types of Work Involved in MnDOT Contracts .............................................................................. 4-3 D. Location of Businesses Receiving MnDOT Contracts ................................................................... 4-5

KEEN INDEPENDENT RESEARCH MINNESOTA DEPARTMENT OF TRANSPORTATION DRAFT 2017 MINNESOTA JOINT DISPARITY STUDY TOC, PAGE II

CHAPTER 5. CONDITIONS IN THE MINNESOTA MARKETPLACE

A. Composition of the Minnesota Workforce and Business Owners ............................................... 5-2 B. Entry and Advancement within Study Industries ......................................................................... 5-6 C. Business Ownership ..................................................................................................................... 5-9 D. Access to Capital, Bonding and Insurance .................................................................................. 5-11 E. Success of Businesses ................................................................................................................. 5-18 F. Summary .................................................................................................................................... 5-27

CHAPTER 6. AVAILABILITY ANALYSIS

A. Overview ...................................................................................................................................... 6-1 B. Definitions of MBEs, WBEs and Majority-owned Businesses....................................................... 6-3 C. Information Collected about Potentially Available Businesses .................................................... 6-4 D. Businesses Included in the Availability Database ........................................................................ 6-6 E. MBE/WBE Availability Calculations on a Contract-by-Contract Basis .......................................... 6-7 F. Overall Availability Results ........................................................................................................... 6-9 G. Strengths of the Keen Independent Approach to Calculating Availability Benchmarks ............ 6-10

CHAPTER 7. UTILIZATION AND DISPARITY ANALYSIS

A. Overview of the Utilization Analysis ............................................................................................ 7-1 B. Utilization of MBE/WBEs in MnDOT Procurement ...................................................................... 7-2 C. Disparity Analysis for MnDOT Procurement ................................................................................ 7-4 D. Statistical Significance of Disparity Analysis Results .................................................................... 7-6

CHAPTER 8. FURTHER EXPLORATION OF MBE/WBE UTILIZATION

A. Trends during the Study Period ................................................................................................... 8-1 B. Within Twin Cities MSA and outside the MSA ............................................................................. 8-3 C. Results by Industry ....................................................................................................................... 8-3 D. Prime Contracts Compared with Subcontracts .......................................................................... 8-10 E. Results by Size of Procurement .................................................................................................. 8-11 F. Sensitivity Analysis Concerning Use of Commitments and Payments Data ............................... 8-12

CHAPTER 9. COMBINED PARTICIPATING ENTITY UTILIZATION AND DISPARITY ANALYSIS

A. Utilization of MBE/WBEs in Participating Entity Procurement .................................................... 9-1 B. Disparity Analysis for Participating Entity Procurement .............................................................. 9-9 C. Disparity Results for Combined Entity Procurement ................................................................. 9-11

KEEN INDEPENDENT RESEARCH MINNESOTA DEPARTMENT OF TRANSPORTATION DRAFT 2017 MINNESOTA JOINT DISPARITY STUDY TOC, PAGE III

CHAPTER 10. SUMMARY OF RESULTS AND CONCLUSIONS

A. Answers to Questions about Conditions for Minority- and Women-owned Firms ................... 10-1 B. Results for Businesses Owned by Persons with Disabilities and by Veterans ............................ 10-8 C. Summary of Recommendations ................................................................................................. 10-8

APPENDIX A. DEFINITION OF TERMS ........................................................................................................ A-1

APPENDIX B. LEGAL FRAMEWORK AND ANALYSIS

A. Introduction ................................................................................................................................. B-1 B. U.S. Supreme Court Cases ............................................................................................................ B-2 C. The Legal Framework Applied to State and Local Government

MBE/WBE/DBE Programs ............................................................................................................ B-5

D. Recent Decisions Involving State or Local Government MBE/WBE/DBE Programs in the Eighth Circuit Court of Appeals .................................................................................................. B-22

E. Recent Decisions Involving State or Local Government MBE/WBE Programs in Other Jurisdictions ..................................................................................................................... B-37

F. Recent Decisions Involving the Federal DBE Program and its Implementation in Other Jurisdictions ...................................................................................................................B-122

G. Recent Decisions and Authorities Involving Federal Procurement That May Impact MBE/WBE/DBE Programs ........................................................................................................B-199

APPENDIX C. MINNESOTA DEPARTMENT OF TRANSPORTATION UTILIZATION DATA COLLECTION

A. Highway Construction and Professional Services Prime Contract Data ....................................... C-1 B. Subcontract Data on Construction Contracts .............................................................................. C-4 C. Characteristics of Utilized Firms ................................................................................................... C-5 D. MnDOT Review ............................................................................................................................ C-5 E. Data Limitations ........................................................................................................................... C-6

APPENDIX D. GENERAL APPROACH TO AVAILABILITY ANALYSIS

A. General Approach to Collecting Availability Information ........................................................... D-1 B. Development of the Survey Instruments .................................................................................. D-11 C. Execution of Surveys ................................................................................................................. D-13 D. Businesses Included in the Availability Database ..................................................................... D-17 E. Additional Considerations Related to Measuring Availability ................................................... D-17 F. The Survey Instrument .............................................................................................................. D-22

KEEN INDEPENDENT RESEARCH MINNESOTA DEPARTMENT OF TRANSPORTATION DRAFT 2017 MINNESOTA JOINT DISPARITY STUDY TOC, PAGE IV

APPENDIX E. ENTRY AND ADVANCEMENT IN THE CONSTRUCTION, PROFESSIONAL SERVICES, GOODS AND OTHER SERVICES INDUSTRIES IN MINNESOTA

Introduction ........................................................................................................................................ E-2

Construction Industry .......................................................................................................................... E-5

Professional Services Industry ........................................................................................................... E-13

Goods Industry .................................................................................................................................. E-15

Other Services Industry ..................................................................................................................... E-16

Summary ........................................................................................................................................... E-17

APPENDIX F. BUSINESS OWNERSHIP IN THE CONSTRUCTION, PROFESSIONAL SERVICES, GOODS AND OTHER SERVICES INDUSTRIES IN MINNESOTA

Business Ownership Rates .................................................................................................................. F-1

Business Ownership Regression Analysis ............................................................................................ F-7

Summary ........................................................................................................................................... F-16

APPENDIX G. ACCESS TO CAPITAL FOR BUSINESS FORMATION AND SUCCESS IN MINNESOTA

Homeownership and Mortgage Lending ............................................................................................ G-2

Summary .......................................................................................................................................... G-13

APPENDIX H. SUCCESS OF BUSINESSES IN CONSTRUCTION, PROFESSIONAL SERVICES, GOODS AND OTHER SERVICES INDUSTRIES IN MINNESOTA

Business Closures, Expansions and Contractions ............................................................................... H-1

Business Receipts and Earnings........................................................................................................ H-11

Relative Bid Capacity ........................................................................................................................ H-32

Availability Interview Results Concerning Potential Barriers ........................................................... H-36

Summary .......................................................................................................................................... H-47

APPENDIX I. DESCRIPTION OF DATA SOURCES FOR MARKETPLACE ANALYSES

U.S. Census Bureau PUMS Data ........................................................................................................... I-1

Survey of Business Owners (SBO) ........................................................................................................ I-8

Home Mortgage Disclosure Act (HMDA) Data ..................................................................................... I-9

KEEN INDEPENDENT RESEARCH MINNESOTA DEPARTMENT OF TRANSPORTATION DRAFT 2017 MINNESOTA JOINT DISPARITY STUDY TOC, PAGE V

APPENDIX J. QUALITATIVE INFORMATION FROM IN-DEPTH INTERVIEWS, SURVEYS, FOCUS GROUPS, PUBLIC FORUMS AND OTHER COMMENTS

A. Introduction and Methodology .................................................................................................... J-2 B. Background on the Firm and Industry.......................................................................................... J-4 C. Whether there is a Level Playing Field for Minority- and Women-owned

Businesses Overall ...................................................................................................................... J-53

D. Any Unfair Treatment, Unfavorable Work Environment or Disadvantages Specific to Minority-owned Businesses ..................................................................................... J-75

E. Any Unfair Treatment, Unfavorable Work Environment or Disadvantages Specific to Women-owned Businesses....................................................................................... J-81

F. Any Unfair Treatment, Unfavorable Work Environment or Disadvantages Specific to Small Businesses ....................................................................................................... J-86

G. Any Unfair Treatment, Unfavorable Work Environment or Disadvantages Specific to Businesses Owned by Persons with Disabilities ....................................................... J-88

H. Any Unfair Treatment, Unfavorable Work Environment or Disadvantages Specific to Veteran-owned Businesses ...................................................................................... J-89

I. Working with One or More of the Participating Entities ........................................................... J-90 J. Insights Regarding Business Assistance Programs and Certification ......................................... J-93 K. Any Other Insights and Recommendations for the Participating Entities ................................ J-110

APPENDIX K. SUMMARY OF PARTICIPATING ENTITY PROGRAMS

A. Program Descriptions ................................................................................................................... K-1 B. Program Eligibility ........................................................................................................................ K-4 C. Program Application .................................................................................................................... K-7 D. Examples of Other Business Assistance ....................................................................................... K-7

KEEN INDEPENDENT RESEARCH MINNESOTA DEPARTMENT OF TRANSPORTATION DRAFT 2017 MINNESOTA JOINT DISPARITY STUDY EXECUTIVE SUMMARY, PAGE 1

EXECUTIVE SUMMARY

The 2017 Minnesota Joint Disparity Study examines whether there is a level playing field for minority- and women-owned firms in the Minnesota marketplace and in public procurement. Keen Independent Research LLC (Keen Independent) performed the study for the Minnesota Department of Transportation (MnDOT) and eight other state and local government entities. MnDOT can use study results when making decisions about programs to assist minority- and women-owned companies and other small businesses.

The disparity study for MnDOT focuses on state-funded highway construction and professional and technical services contracts. Contracts using U.S. Department of Transportation funds were not included. MnDOT operates the Federal Disadvantaged Business Enterprise (DBE) Program for those contracts.

MnDOT operates the Targeted Group Business (TGB) Program to address barriers to participation of minority- and women-owned businesses in its state-funded contracts and to assist companies owned by persons with disabilities. The study analyzes whether MnDOT’s efforts have been effective in eliminating any disparities in the utilization of minority- and women-owned businesses (MBEs and WBEs) in its state-funded highway construction and professional services contracts.

This report is a draft released for public input, including comments received at public forums to be held in February 2017. The Executive Summary includes:

A. Background on the study; B. Disparity Study research activities; C. Quantitative and qualitative information for the Minnesota marketplace; D. Disparity analysis; E. Recommendations; and F. Public participation in the Disparity Study.

A. Background on the Study

MnDOT periodically conducts disparity studies to determine whether there is sufficient need for programs that assist minority- and women-owned firms in its procurement. MnDOT last conducted a disparity study in 2009.1

Legal framework for the disparity study. In 1989, the U.S. Supreme Court established substantial limitations on the ability of state and local governments to have minority business programs or any other initiatives benefitting businesses based on the race of their owners. Legal restrictions also apply

1 MGT of America, Inc. State of Minnesota Joint Availability and Disparity Study, Minnesota Department of Transportation, October 23, 2009, revised January 11, 2010.


to programs for women-owned firms. Disparity studies help to provide state and local governments information to determine whether programs are needed and supportable.

Even if a targeted business program does not consider race or gender, it can still be subject to legal challenge. However, such programs are more easily defended by the public entity. These types of programs include small business enterprise (SBE) programs and those that provide assistance to firms based on whether they are owned by veterans or by persons with disabilities. Although disparity studies typically do not examine these groups, the Minnesota Joint Disparity Study added analysis of marketplace conditions for businesses owned by veterans and persons with disabilities.

Programs. The TGB Program provides price and evaluation preferences to certified minority- and women-owned firms and companies owned by people with a substantial physical disability. The VET Program provides preferences to veteran-owned businesses. MnDOT also sets TGB and VET contract goals. Bidders must either meet the TGB/VET goal for a contract or show good faith efforts to do so.

MnDOT uses the TGB directory administered by the Minnesota Department of Administration to identify eligible TGBs. Beginning in 2016, certified DBEs based in Minnesota were considered to be TGBs.2 For the VET Program, MnDOT uses the VetBiz directory through the U.S. Department of Veteran Affairs as well as certification through the State of Minnesota.

In addition to the TGB Program and DBE Program, MnDOT has efforts that help all small businesses (race- and gender-neutral programs), such as its Small Business Resource Center.

B. Disparity Study Research Activities

The Keen Independent study team began work in summer 2016 and completed draft reports in late 2017. Local team members included Felton Financial Forensics, CJ Petersen & Associates, Fondungallah & Kigham, and KLD Consulting. Team members from outside Minnesota were Holland & Knight, BBC Research & Consulting and Customer Research International.

Department of Transportation contracts and subcontracts. Keen Independent examined procurements made with for-profit companies related to state-funded highway-related construction as well as professional and technical services contracts. All other contracts were excluded.

Keen Independent studied contracts awarded from July 1, 2011 through June 30, 2016, and any associated subcontracts. For construction, Keen Independent augmented MnDOT information with data from Contractor Affidavits (IC134 Forms) that prime contractors and subcontractors submit to the Minnesota Department of Revenue. Including subcontracts, Keen Independent examined 7,363 MnDOT procurements totaling $1.6 billion over the study period.

Relevant geographic market area. About 94 percent of combined MnDOT procurement dollars went to firms with locations in Minnesota and two counties in Wisconsin (Pierce and St. Croix). This geographic area was the focus of the marketplace and availability analyses in the disparity study.

2 Eligible DBEs still need to apply to the TGB program administered by the Minnesota Department of Administration.


Analysis of marketplace conditions. The study team compiled and analyzed quantitative information about outcomes for minorities and women, minority-owned businesses and women-owned firms in the Minnesota marketplace. Keen Independent also researched conditions for firms owned by veterans and persons with disabilities.

The study team conducted in-depth interviews, surveys and focus groups that obtained input from 2,449 business owners and other individuals. Keen Independent also held public forums and received comments from the website, dedicated email address and dedicated telephone hotline for the study. Companies interviewed included minority- and women-owned firms, majority-owned firms, veteran-owned businesses and companies owned by persons with disabilities.

Availability, utilization and disparity analyses. Disparity analyses compare the percentage of entity contract dollars going to minority- and women-owned firms with what might be anticipated given the relative availability of MBEs and WBEs for individual entity contracts and subcontracts.

Data for the availability analysis came from Keen Independent’s online and telephone surveys that reached thousands of companies in Minnesota. Firms were asked about their availability for different types, sizes and locations of prime contracts and subcontracts for public agencies in the state.

After completing surveys with 20,527 businesses in Minnesota, the study team reviewed responses to develop a database of companies potentially available for MnDOT and other participating entity work. The study team’s research identified 5,064 businesses reporting that they were available for specific types of public sector procurements and subcontracts. Of those businesses, 9 percent were minority-owned and 18 percent were white women-owned (27.6% MBE/WBE in total).

Keen Independent then determined the availability of MBEs, WBEs and majority-owned firms for each of the 7,363 MnDOT procurements examined in the study. For some procurements, MBE/WBEs were a relatively large percentage of total firms available. There were other contracts for which only a few firms were available and none were MBE/WBEs. Keen Independent combined the results of these contract-by-contract availability analyses to calculate overall availability benchmarks. From this analysis, one might expect MBE/WBEs to have received 20.50 percent of MnDOT contract dollars, including subcontracts.

Keen Independent compared the share of procurement dollars going to minority- and women-owned firms (“utilization’) with what might be expected based on the availability analysis.

MnDOT applied the TGB Program to its contracts for a portion of the study period, so any lack of disparity in MnDOT procurements might indicate success of this race- and gender-conscious program. Therefore, Keen Independent reviewed results before and after MnDOT began administering the program. The study team also considered disparity analysis results from other participating entities. This information helped the study team evaluate whether there would have been disparities in MnDOT procurement but for the TGB Program.


C. Quantitative and Qualitative Information for the Minnesota Marketplace

Keen Independent examined marketplace conditions based on U.S. Census data, information collected through surveys and in-depth interviews, public forums and other sources.

Marketplace conditions for minority- and women-owned businesses. There is quantitative and qualitative information suggesting that there is not a level playing field for minority- and women-owned businesses in the Minnesota construction, professional services, goods and other services industries. This includes evidence of unequal opportunities to:

Enter and advance as employees within certain study industries; Start and operate businesses within study industries; and Obtain financing and bonding.

As a result, there are fewer minority- and women-owned firms in certain industries than there would be if there were a level playing field for minorities and women in the Minnesota marketplace.

Business outcomes also differed for MBE/WBEs compared with majority-owned companies.

Compared with majority-owned companies, minority- and women-owned businesses in Minnesota are more likely to be small. Therefore, any disadvantages for small businesses disproportionately affect MBEs and WBEs.

There is evidence that outcomes for minority- and women-owned firms differ from similarly-situated white male-owned companies. In particular, female business owners earned less than men who owned businesses.

Success in Minnesota marketplace depends on relationships with other individuals, including customers, suppliers, bankers, prime contractors and subcontractors, depending on the type of business. Some of the minority and female interviewees reported unequal access to these relationships, stereotyping and other unequal treatment based on their race or gender.

Such information is important when MnDOT and other participating entities examine programs that assist MBE/WBE businesses.

Results for persons with disabilities and veterans. Persons with disabilities and veterans in Minnesota are more likely than other groups to own businesses in the study industries. However, there is also evidence that persons with disabilities who own businesses earn less than other business owners. Veterans who own businesses have slightly lower earnings than non-veteran business owners.

D. Disparity Analysis

MnDOT procurement. Minority- and women-owned businesses received 6.98 percent of the MnDOT procurement dollars examined in this study, including payments to non-certified MBE/WBEs. Utilization of minority- and women-owned firms in MnDOT procurement was below


the 20.50 percent that might be expected from the availability analysis. Figure ES-1 presents these overall results from the disparity analysis.

The study team compared utilization and availability results using a “disparity index,” which is calculated by dividing utilization by availability and multiplying by 100 (“100” is parity). The disparity index for MBE/WBE utilization in MnDOT procurement is 34 (6.98% divided by 20.50%, multiplied by 100). Because the index is below 80, the disparity is “substantial,” according to guidance from the courts. The disparity occurred even though MnDOT operated the TGB Program for some of the study period.

Figure ES-1. MBE/WBE utilization and availability for MnDOT state-funded construction and professional services procurements, July 2011–June 2016 Note:

7,363 procurements examined.

Source:

Keen Independent utilization and availability analyses for MnDOT procurements.

Figure ES-2 shows utilization, availability and disparity results for individual MBE groups as well as

white women-owned firms. There were disparities for MBEs and WBEs overall, and for each MBE group except for Asian American-owned companies.

Figure ES-2. Disparity analysis for MnDOT state-funded construction and professional services procurements, July 2011-June 2016

Note: Disparity index = 100 x Utilization/Availability.

Source: Keen Independent utilization and availability analyses for MnDOT procurements.

African American-owned 0.05 % 1.97 % 3 Asian American-owned 1.10 0.83 133 Hispanic American-owned 0.43 0.54 80 Native American-owned 0.05 5.13 1 Unknown MBE 0.01 Total MBE 1.63 % 8.46 % 19

WBE (white women-owned) 5.36 12.03 45 Total MBE/WBE 6.98 % 20.50 % 34

Utilization AvailabilityDisparity

index

Utilization Availability0%

5%

10%

15%

20%

25%

30%

6.98%

20.50%

100%MBE/WBE


Figure ES-3 presents results for MnDOT construction procurements before and after implementation of the TGB Program. There were substantial disparities for each group prior to implementation of the program in 2013. Utilization increased for MBEs and for WBEs with the program, but disparities persisted for each group except for Asian American-owned companies.

Figure ES-3. Disparity analysis for MnDOT construction contracts before and with TGB Program


Source: Keen Independent utilization and availability analyses for MnDOT procurements, including subcontracts.

Implementation of the TGB Program did not appear to have a positive effect on MBE/WBE participation for MnDOT state-funded professional services contracts. Utilization dropped from 11.54 percent before the program to 6.39 percent with the program. The disparity index worsened to 31 for 2015 through June 2016.

In both time periods, there were substantial disparities for African American-, Native American- and white women-owned professional services firms. Utilization exceeded availability for Asian American-owned companies. In the most recent time period, there were substantial disparities in the utilization of Hispanic American-owned professional services firms.

Construction 2011–2012African American-owned 0.01 % 0.98 % 1 Asian American-owned 0.04 0.13 31 Hispanic American-owned 0.10 0.47 21 Native American-owned 0.06 6.30 1 Unknown MBE 0.00 Total MBE 0.21 % 7.88 % 3 WBE (white women-owned) 3.92 11.56 34 Total MBE/WBE 4.13 % 19.44 % 21

Construction 2013–2016African American-owned 0.06 % 1.06 % 6 Asian American-owned 0.53 0.19 279 Hispanic American-owned 0.17 0.49 35 Native American-owned 0.04 6.78 1 Unknown MBE 0.01 Total MBE 0.80 % 8.53 % 9 WBE (white women-owned) 5.18 11.27 46 Total MBE/WBE 5.97 % 19.80 % 30

With program


index

Without program


Figure ES-4. Disparity analysis for MnDOT professional services contracts, before and with TGB Program


Source: Keen Independent utilization and availability analyses for MnDOT procurements, including subcontracts.

Combined participating entity procurement. The study team also analyzed whether there were disparities between MBE/WBE utilization and availability for entity procurement combined. Figure ES-5 aggregates results for Admin, Minnesota State, Minnesota Department of Transportation, Metropolitan Airports Commission, Metropolitan Mosquito Control District, Metropolitan Council, City of Minneapolis, City of Saint Paul and Hennepin County.

The combined utilization of minority- and women-owned firms in participating entity procurement during the study period — 10.35 percent of total procurement dollars — was below the 19.85 percent that might be expected from the availability analysis.

The resulting disparity index for MBE/WBEs is 52. The disparity occurred even though eight of the nine entities operated race- and gender-based programs during this time period and the ninth entity (Hennepin County) drew from a pool of certified firms that was largely MBE/WBEs.

Professional services 2011–2014African American-owned 0.07 % 3.88 % 2 Asian American-owned 2.71 2.21 123 Hispanic American-owned 1.23 0.57 216 Native American-owned 0.05 2.41 2 Total MBE 4.05 % 9.06 % 45 WBE (white women-owned) 7.48 13.60 55 Total MBE/WBE 11.54 % 22.67 % 51

Professional services 2015–2016African American-owned 0.03 % 3.56 % 1 Asian American-owned 1.87 1.86 101 Hispanic American-owned 0.42 0.74 57 Native American-owned 0.08 1.65 5 Total MBE 2.40 % 7.82 % 31 WBE (white women-owned) 3.98 12.96 31 Total MBE/WBE 6.39 % 20.78 % 31

With program


index

Without program


Figure ES-5. MBE/WBE utilization and availability for combined entity procurements, July 2011–June 2016 Note:

125,474 procurements analyzed.

Source:

Keen Independent utilization and availability analyses for combined entity procurements.

E. Recommendations

The TGB Program has not eliminated disparities for minority- and women-owned firms in MnDOT’s state-funded highway construction and professional services contracts.

Keen Independent recommends that MnDOT and other participating entities:

1. Work together to address barriers and open opportunities for minority- and women-owned firms and other small businesses;

2. Based on all information available, consider retaining existing programs and fully implementing them;

3. Pursue opportunities for new and better tools to address barriers; 4. Track and report results on MBE/WBE participation; and 5. Carefully consider study results and other information to determine future program

eligibility by group.

1. Work together to address barriers and open opportunities for MBE/WBEs and other small businesses. There is a need for a broad combined effort by participating entities and other partners to address the effects of race and gender discrimination in employment, entrepreneurship and business success.

MnDOT and other participating entities might work together to:

a. Better communicate procurement opportunities, coordinate outreach and build a joint bidders list.

b. Strengthen local technical assistance, financing, bonding assistance and other capacity-building efforts.

c. Improve virtual assistance portals for businesses in Minnesota.

Utilization Availability0%

5%

10%

15%

20%

25%

30%

10.35%

19.85%

100%MBE/WBE


d. Maintain efforts that enforce non-discrimination in employment as well as further training, employment and advancement for women and people of color in certain industries.

e. Jointly work to streamline and simplify public procurement processes, including unbundling large contracts, removing unnecessary contract specifications, writing procurement documents in plain language, routinely providing feedback to bidders and proposers, and prompt payment.

f. Share best practices and results of pilot programs among government entities.

g. Streamline certification and pursue reciprocity or joint certification when possible.

h. Jointly pursue action by the State Legislature to reduce barriers to public sector procurement embedded in state law.

2. Based on all information available, consider retaining existing programs and fully implementing them. The Targeted Group Business Program includes provisions for:

Contract goals; Price preferences; Direct procurement from TGBs for small purchases that do not require competitive

bid; and For small procurements, the ability to restrict bidding to TGBs.

The contract goals program applies to construction and to professional and technical services contracts.

MnDOT currently has authority for the preference and small purchase programs for TGBs for state-funded construction contracts, but not other procurements. (Only the VET program can be applied to construction-related professional and technical services.) Under the small purchase program, MnDOT can restrict bidding to TGBs if at least three TGBs are likely to bid.

MnDOT might consider more broadly implementing these program measures, after reviewing the information it has from this report and other sources and conducting further legal review.

For example, MnDOT might:

a. Further develop the new contract goals program for professional and technical services contracts.

b. Develop a list of TGB-certified companies able to provide the types of small transportation construction projects and prequalify them for participation in the small purchase program. MnDOT district staff may need further training on the program, which can benefit districts through simplifying and accelerating the bidding process.


c. Encourage direct procurement from TGBs for small purchases across MnDOT districts.

d. Track each MnDOT district’s use of direct procurement and small purchase programs to determine whether further encouragement is needed in certain districts.

e. Review MnDOT qualifications requirements for construction and services contracts.

3. Pursue opportunities for new and better tools to address barriers. After reviewing all available information and legal issues, MnDOT might evaluate and consider seeking authority to:

a. Increase the maximum amount of preference for TGB-certified businesses (currently up to 6%).

b. Include TGBs in the price and evaluation preferences for its state-funded professional and technical services contracts.

c. Extend the TGB Program, or requirements for TGB outreach, to local governments receiving state transportation funds through MnDOT.

4. Track and report results on MBE/WBE participation. MnDOT might improve its reports by including dollars for all businesses in its reports, providing information by race, ethnicity and gender, and developing and reporting data on non-certified MBE/WBEs utilized in MnDOT contracts.

5. Carefully consider study results and other information to determine future program eligibility by group. MnDOT should consider all of the results of the disparity study and other information when considering whether it should continue to operate race- and gender-conscious programs, and if so, which groups will be eligible for programs in specific industries.

As discussed in Chapter 8, there were substantial disparities for each MBE group and for WBEs before MnDOT implemented the TGB Program for state-funded construction contracts.

There were substantial disparities for African American-, Native American- and white women-owned firms for MnDOT’s state-funded professional series contracts before and after extension of the TGB Program to those contracts. There were no disparities for Asian American-owned professional services businesses in either set of professional services contracts. For Hispanic American-owned professional services companies, there was a substantial disparity with the program and no disparity without the program. Reviewing the results from other participating entities, there were substantial disparities for Hispanic American-owned professional services firms for each of the other entities.


F. Public Participation in the Disparity Study

In addition to considerable time devoted to the study by their own staff, the government entities participating in the Joint Disparity Study implemented an extensive public participation process. To date, these activities have included:

Obtaining regular feedback from an External Stakeholder Group that met with the study team once per quarter throughout the project. The External Stakeholder Group included representatives of the local business community and community groups that had an interest in entity contracting and programs, and small business development.

Distribution of information to interested groups through press releases, email blasts and presentations.

A study website that posted information about the 2017 Joint Disparity Study from the outset of the study.

A telephone hotline and dedicated email address for anyone wishing to comment.

Public forums at the start of the study to obtain input from stakeholders and other interested groups (held at the Minneapolis Central Library on August 31, 2016).

Through online and telephone surveys, opportunities for company owners and managers to provide information about their businesses and any perceived barriers in the marketplace (the study team successfully reached 20,527 businesses).

In-depth interviews and focus groups with businesses, trade associations and others.

Keen Independent and the participating entities now seek public input regarding this draft Disparity Study report. The public can give feedback and provide written comments:

1. In person public forums (see mn.gov/admin/disparity-study for more information); 2. Online at mn.gov/admin/disparity-study; 3. Via email at [email protected]; and 4. Through regular mail to Keen Independent Research, 100 Fillmore Street, 5th Floor,

Denver CO 80206.

Figure ES-6 on the following page shows dates, times and locations of the upcoming public forums. Visit mn.gov/admin/disparity-study for more information on the public forum held via webinar.


Figure ES-6. Public forum dates and locations

Keen Independent will review information from the public forums and written comments before preparing a final Disparity Study report. This information will aid the City and other participating entities in making decisions concerning continuation or enhancement of existing programs and implementation of new programs.

Date Time Location

February 12, 2018 5 pm to 7 pm Minneapolis Urban LeagueLaura Scott Williams Room2100 Plymouth Avenue NorthMinneapolis, MN 55411

February 13, 2018 5 pm to 7 pm The Wellstone CenterRoom 30179 Robie Street EastSt. Paul, MN 55107

February 15, 2018 10 am to 12 pm MnDOT Rochester HeadquartersEast and West Mississippi Rooms2900 48th Street NW Rochester, MN 55901

February 16, 2018 11 am to 1 pm MnDOT Duluth HeadquartersLake Superior Room1123 Mesaba AvenueDuluth, MN 55811

To be scheduled Statewide webinar

KEEN INDEPENDENT RESEARCH MINNESOTA DEPARTMENT OF TRANSPORTATION DRAFT 2017 MINNESOTA JOINT DISPARITY STUDY CHAPTER 1, PAGE 1

CHAPTER 1. Introduction

Keen Independent Research LLC (Keen Independent) conducted the 2017 Minnesota Joint Disparity Study for Minnesota Department of Transportation (MnDOT) and other participating state and local government entities.

The study examines whether there is a level playing field for minority- and women-owned firms in the Minnesota marketplace. Research included whether MnDOT’s current programs are effective in eliminating any disparities in the utilization of minority- and women-owned businesses (MBE/WBEs) in its contracts. This study also analyzes marketplace conditions for veteran-owned businesses and companies owned by persons with disabilities.

The state and local government entities (“participating entities”) in the Joint Disparity Study are:

Minnesota Department of Administration and MnDOT (separate studies); Minnesota State Colleges and Universities (Minnesota State); Metropolitan Airports Commission; Metropolitan Council; Metropolitan Mosquito Control District; City of Minneapolis; City of Saint Paul, including the Housing and Redevelopment Authority; and Hennepin County.

Participating entities can use these study results and other information they have to make decisions about continuation or enhancement of existing programs and implementation of new programs. This report is a draft and will be augmented based on further public input. The Joint Disparity Study began in summer 2016 and research was completed in late 2017. MnDOT last conducted a disparity study in 2009.1

The balance of Chapter 1:

A. Introduces the study team; B. Outlines analyses conducted and where results appear in the draft report; C. Describes the public participation process throughout the study; and D. Summarizes how anyone can provide input on future programs and the draft report.

1 MGT of America, Inc. State of Minnesota Joint Availability and Disparity Study, Minnesota Department of Transportation, October 23, 2009, revised January 11, 2010.


A. Study Team

David Keen, Principal of Keen Independent, directed this study. He has led more than 100 similar studies, including those for the City of Minneapolis, City of St. Paul and Hennepin County in the 1990s. Annette Humm Keen, Principal, directed all qualitative research.

Keith Wiener from Holland & Knight provided the legal framework. Mr. Keen and Mr. Wiener have helped public agencies successfully defend minority business enterprise programs in court.

As shown in Figure 1-1, four Minnesota-based firms assisted in conducting in the study — Felton Financial Forensics, CJ Petersen & Associates, Fondungallah & Kigham, and KLD Consulting. These four team members are minority- and/or women-owned firms.

BBC Research & Consulting prepared the quantitative analysis of marketplace conditions and assisted in compiling firm ownership information. Customer Research International (CRI) performed telephone interviews with firm owners and managers as part of the availability data collection.

Figure 1-1. 2017 Minnesota Joint Disparity Study team

Firm

Location

Team Leader

Responsibilities

Keen Independent Research LLC, prime consultant

Denver CO Wickenburg, AZ

David Keen Annette Humm Keen Principals

All study phases

Holland & Knight LLP (H&K) Atlanta, GA Keith Wiener Partner

Legal framework

Felton Financial Forensics & Valuation LLC

Edina, MN Mark Felton Principal

Data collection and in-depth interviews

Fondungallah & Kigham LLC Saint Paul, MN Michael Fondungallah Esquire Pamela Kigham Esquire

Public outreach and in-depth interviews

CJ Petersen & Associates LLC Saint Paul, MN Catherine Petersen Principal

In-depth interviews

KLD Consulting Minneapolis, MN Kathie Doty Principal

Public outreach and in-depth interviews

BBC Research & Consulting (BBC) Denver, CO Kevin Williams Managing Director

Quantitative analysis of marketplace conditions

Customer Research International (CRI)

San Marcos, TX Sanjay Vrudhula President

Availability telephone interviews


B. Disparity Study Analyses and Organization of the Draft Report

Keen Independent explains key study components in the next several pages. Figures 1-2 and 1-3 on pages 5 and 6 of this chapter summarize where results appear in the report.

Legal framework for the disparity study. In 1989, the U.S. Supreme Court established substantial limitations on the ability of state and local governments to have minority business enterprise programs or any other programs benefitting a group based on race. Legal restrictions also apply to gender-conscious programs.

Even if a targeted business program does not consider race or gender, it can still be subject to legal challenge. However, such programs are more easily defended by the enacting jurisdiction. The jurisdiction need only show that it has a “rational basis” for the program. These types of programs include small business enterprise (SBE) programs and those that provide assistance to firms based on whether they are owned by veterans or by persons with disabilities. Chapter 2 of the report explains the different legal standards that a state or local jurisdiction would need to meet in order to legally support different types of programs. Holland & Knight also prepared a detailed analysis of relevant legal cases, presented in Appendix B.

Programs. MnDOT operates the Targeted Group Business (TGB) and Veteran-owned Small Business Programs (VET). The TGB Program provides preferences to certified minority- and women-owned firms and companies owned by people with a substantial physical disability. The VET Program provides preferences to veteran-owned businesses. Eligible TGB and VET businesses must be based in Minnesota. The State of Minnesota Department of Administration (Admin) is responsible for certification of TGB companies.

The VET Program was enacted in 2010 for state-funded highway construction projects. In 2013, MnDOT started applying the TGB Program for state-funded highway construction projects. In 2014, VET and TGB Programs were expanded to include professional/technical services contracts.

MnDOT also operates the Federal Disadvantaged Business Enterprise (DBE) Program for U.S. Department of Transportation-funded contracts, which were not examined in this study.

Minnesota Department of Transportation contracts and subcontracts. The disparity study for MnDOT focuses on state-funded construction and professional and technical services contracts. Contracts using U.S. Department of Transportation funds were not included. Goods and other services purchases that Admin made on behalf of MnDOT are also excluded from the MnDOT study. Data sources were:

Trunk and highway data maintained by the MnDOT Office of Civil Rights; and

Professional and technical services data maintained by the MnDOT Office of Professional Technical Consultant Services.

Keen Independent examined procurements made within the study period (July 1, 2011 through June 30, 2016). Chapter 4 summarizes information about MnDOT contracts. Appendix C further explains the methods used to compile and analyze this information.


Marketplace conditions. The study team compiled and analyzed quantitative information about outcomes for minorities and women, and minority- and women-owned firms in the Minnesota marketplace. Chapter 5 summarizes results, and Appendices E through I provide supporting detail.

Study team members also conducted in-depth interviews with business owners and managers and with trade association representatives in Minnesota. These included interviews with minority- and women-owned firms, veteran-owned businesses and companies owned by persons with disabilities. Chapter 5 also reviews these results and Appendix J provides a detailed reporting of representative comments.

Availability analysis. Disparity analyses compare the percentage of entity contract dollars going to minority- and women-owned firms with what might be anticipated given the relative availability of MBEs and WBEs for individual entity contracts and subcontracts. Data for the availability analysis came from Keen Independent’s online and telephone surveys that reached thousands of companies in Minnesota. Firms were asked about their availability for different types, sizes and locations of prime contracts and subcontracts for public agencies in the state.

Chapter 6 presents the availability benchmarks for MnDOT construction, professional services, goods and other services contracts for each MBE group and for WBEs. Appendix D describes the survey process and results.

Utilization and disparity analysis. Chapter 7 compares utilization of minority- and women-owned firms with the availability benchmarks described in Chapter 6. Keen Independent conducted the disparity analysis for MnDOT construction, professional services, goods and other services contracts and presents results by minority group and for white women-owned firms.

Keen Independent further explores MBE/WBE utilization on MnDOT contracts in Chapter 8, including statistical analysis of whether random chance in contract awards could explain any observed disparities.

As MnDOT typically applies the TGB to its state-funded construction and professional and technical services contracts, any lack of disparity in MnDOT procurements might indicate success of this race- and gender-conscious program. To better understand whether there would be disparities in MnDOT procurement absent any such program, Keen Independent reviewed disparity analysis results from other participating entities, especially for contracts for which no such programs applied. Chapter 9 summarizes these results.

Summary of results and conclusions. In Chapter 10, Keen Independent summarizes the information about conditions and outcomes for minority- and women-owned firms, including the collective results of the utilization, availability and disparity analyses and results of study team research on the Minnesota marketplace. The study team also makes suggestions for MnDOT consideration concerning any need to continue the TGB Program, and how elements of the program might be improved.


Figure 1-2 outlines the chapters in the 2017 Joint Disparity Study draft report for MnDOT.

Figure 1-2. Chapters in 2017 Disparity Study draft report

Report chapter Description

ES. Executive Summary Brief summary of study results

1. Introduction Study purpose, study team and organization of report

2. Legal Framework Legal standards concerning programs for minority-owned firms, women-owned firms, and businesses owned by veterans and persons with disabilities

3. Entities' Programs Programs currently in place to assist MBEs, WBEs, veteran-owned firms, businesses owned by persons with disabilities and other small businesses

4. Entity Contracts How the study team compiled data about participating entity contracts and subcontracts and the utilization of MBEs and WBEs

5. Marketplace Conditions Conditions for minorities and women, minority- and women-owned firms and businesses owned by veterans and persons with disabilities

6. Availability Analysis Approach and results for determining the availability of minority- and women-owned firms for entity contracts

7. Utilization and Disparity Analysis Comparison of utilization and availability for minority- and women-owned businesses

8. Further Exploration of MBE/WBE Utilization Further examination of disparity results to determine if any disparities can be explained by neutral factors

9. Disparity Analysis Results for all Entities Examination of utilization and disparity results for participating entities based on types of programs in place

10. Summary of Results and Conclusions Synthesis of results and recommendations


Figure 1-3 outlines the appendices included in the draft report.

Figure 1-3. Appendices in 2017 Disparity Study draft report

C. Public Participation in the 2017 Joint Disparity Study

The government entities participating in the Joint Disparity Study implemented an extensive public participation process as part of the study. To date, these activities have included:

An External Stakeholder Group that met with the study team once per quarter throughout the project and included representatives of the local business community and community groups that had an interest in entity contracting and programs, and small business development. This group provided input on perceived strengths and weaknesses of past disparity studies, information sources, outreach efforts and program opportunities.

Distribution of information to interested groups through press releases, email blasts and presentations.

A study website that posted information about the 2017 Joint Disparity Study from the outset of the study.

Report appendix Description

A. Definition of Terms Explanation of acronyms and terms used in the study

B. Legal Framework and Analysis Detailed review of relevant court cases

C. Contract Data Collection Methods used to compile and analyze contracts and subcontracts

D. Availability Data Collection Methods used to compile and analyze data about availability of firms for participating entity contracts

E. Entry and Advancement in the Marketplace Quantitative analysis of any disparities in employment and advancement of minorities, women, veterans and persons with disabilities

F. Business Ownership in the Marketplace Quantitative analysis of any disparities in business ownership

G. Access to Capital in the Marketplace Quantitative analysis of any disparities in access to capital

H. Success of Businesses in the Marketplace Quantitative analysis of disparities in business success

I. Description of Data Sources for Marketplace Analyses

Documentation of sources for quantitative analyses of marketplace conditions

J. Qualitative Information for the Marketplace Analysis of in-depth interviews and other sources

K. Summary of Participating Entity Programs Existing programs for firms owned by minorities, women, veterans and persons with disabilities


A telephone hotline and dedicated email address for anyone wishing to comment.

Public forums at the start of the study to obtain input from stakeholders and other interested groups (held at the Minneapolis Central Library on August 31, 2016).

Through online and telephone surveys, opportunities for company owners and managers to provide information about their businesses and any perceived barriers in the marketplace (the study team successfully reached 20,556 businesses surveys).

In-depth personal interviews and focus groups with business owners, managers, trade association representatives and public sector procurement and project management staff.

D. Public Comment Process for the 2017 Joint Disparity Study Report

Keen Independent and the participating entities now seek public input regarding this draft Disparity Study report. The public can give feedback and provide written comments:

1. In person public forums (see mn.gov/admin/disparity-study for more information); 2. Online at mn.gov/admin/disparity-study; 3. Via email at [email protected]; and 4. Through regular mail to Keen Independent Research, 100 Fillmore Street, 5th Floor,

Denver CO 80206.

Figure 1-4 on the following page shows dates, times and locations of the upcoming public forums. Visit mn.gov/admin/disparity-study for more information on the public forum held via webinar.


Figure 1-4. Public forum dates and locations

Keen Independent will review information from the public forums and written comments before preparing a final Disparity Study report. This information will aid the City and other participating entities in making decisions concerning continuation or enhancement of existing programs and implementation of new programs.

Date Time Location

February 12, 2018 5 pm to 7 pm Minneapolis Urban LeagueLaura Scott Williams Room2100 Plymouth Avenue NorthMinneapolis, MN 55411

February 13, 2018 5 pm to 7 pm The Wellstone CenterRoom 30179 Robie Street EastSt. Paul, MN 55107

February 15, 2018 10 am to 12 pm MnDOT Rochester HeadquartersEast and West Mississippi Rooms2900 48th Street NW Rochester, MN 55901

February 16, 2018 11 am to 1 pm MnDOT Duluth HeadquartersLake Superior Room1123 Mesaba AvenueDuluth, MN 55811

To be scheduled Statewide webinar


CHAPTER 2. Legal Framework

Targeted business programs are subject to legal challenge. Different standards of legal review apply depending on whether a program considers the race, ethnicity or gender of a business owner (known as “race-conscious” and “gender-conscious” programs). Appendix B discusses how courts have evaluated the legality of race- and ethnicity-based programs, gender-conscious programs and other targeted business programs. This legal framework is briefly summarized below.

Minority Business Enterprise (MBE) and Women Business Enterprise (WBE) Programs

Many state and local governments throughout the country adopted minority business programs for public contracting in the 1970s and 1980s. In 1989, the U.S. Supreme Court established substantial limitations on the ability of state and local governments to enact and operate MBE programs or any other programs benefitting a group based on race or ethnicity. Legal restrictions also apply to gender-conscious programs.

Since 1989, several state and local entities in Minnesota have faced lawsuits or threats of legal challenge regarding their minority and women business programs. The Minnesota Department of Transportation has also defended its implementation of the Federal Disadvantaged Business Enterprise (DBE) Program (see Appendix B).

The Croson decision. The 1989 U.S. Supreme Court decision in City of Richmond v. J.A. Croson Company1 held there are only certain limited permissible reasons for a local government to have a race-conscious program. The Supreme Court set specific conditions for such programs:

1. A state or local government must establish and thoroughly examine evidence to determine whether there is a compelling governmental interest in remedying specific past identified discrimination or its present effects; and

2. A state or local government must also ensure that any program adopted is narrowly tailored to achieve the goal of remedying the identified discrimination.

These two requirements must both be satisfied to meet the U.S. Supreme Court’s strict scrutiny standard of review for race-conscious programs. Many state and local governments across the country discontinued MBE programs after the Croson decision. Some then conducted disparity studies to determine if there was evidence supporting an MBE program that met this standard. Even if they have a compelling governmental interest for such programs, state and local governments can face legal challenges if they have not implemented those programs in a narrowly-tailored way.

1City of Richmond v. J.A. Croson Company, 488 U.S. 469 (1989). See Appendix B for thorough discussion of the legal issues.


Compelling governmental interest. Disparity studies examine whether there is a disparity between the utilization and availability of minority- and women-owned firms in an entity’s contracts, which is key information in determining whether there is evidence that race or gender discrimination affects a jurisdiction’s procurement. Because the U.S. Supreme Court held that a jurisdiction could take action if it had become a passive participant in a system of racial exclusion practiced by elements of the local construction industry, disparity studies also examine local marketplace conditions.

Narrow tailoring. There are a number of factors used to determine whether a program is narrowly tailored. They include consideration of whether workable “race-neutral measures,” such as small business programs, are sufficient to remedy the identified discrimination. A program must also be limited to those racial and ethnic groups identified as having suffered discrimination in the relevant marketplace.

Intermediate scrutiny for gender-based programs. Some courts have applied an intermediate scrutiny standard when reviewing programs for women-owned firms. This standard has similar components to strict scrutiny, but is more easily met. The district court in Geyer Signal, Inc. v. Minnesota DOT recognized the intermediate scrutiny standard (see Appendix B).2

Other Targeted Business Programs

A targeted business program can be legally challenged even if the program does not consider race, ethnicity or gender of the business owner. However, such programs are much more easily defended. The state or local government generally need only show that it has a “rational basis” for such a program, depending upon its components and how it is implemented.

Small business programs. Small business programs are those that consider eligibility and provide preferences to companies based on their annual revenue, number of employees, and/or other factors such as personal net worth of the business owner. As noted above, the rational basis legal standard that might generally apply to such programs is more easily met than standards triggered for race- or gender-conscious programs.

Programs based on economic disadvantage, physical disability or veteran status. As with small business programs, a state or local government can face legal challenges concerning programs for firms located in economically disadvantaged areas (such as counties or empowerment zones), businesses owned by persons with disabilities, and companies owned by veterans. These programs can be reasonably expected to only satisfy the rational basis test for defensibility, depending on their components.

2 2014 W.L. 1309092 at footnote 4, citations omitted.


Local Business Programs

Local business programs seek to increase an entity’s procurement dollars that go to companies with a primary place of business in a jurisdiction or are otherwise located within a jurisdiction. They might restrict bidding to local companies or provide preferences to local firms when evaluating bids and proposals. Local business programs might also set contract goals to encourage participation of locally-owned subcontractors.

Although there are relatively few legal decisions related to such programs, they can raise constitutional issues that might rise to the strict scrutiny standard of judicial review (for example, if they require residency requirements as part of their program eligibility).

Programs Pertaining to Federally-funded Contracts

The State, MnDOT, metropolitan agencies and local governments in Minnesota also follow federal regulations and requirements to apply MBE/WBE or DBE programs for certain federally-funded contracts. U.S. Department of Transportation-funded contracts, for which the Federal DBE Program typically applies, are not part of the 2017 Minnesota Joint Disparity Study.


CHAPTER 3. Programs Operated by MnDOT and Other Entities

A. MnDOT Implementation of Programs

MnDOT operates the Targeted Group Business (TGB) and Veteran-owned (VET) Small Business Programs. The TGB Program provides preferences to certified minority- and women-owned firms and companies owned by people with a substantial physical disability. The VET Program provides preferences to veteran-owned businesses. Eligible businesses must be based in Minnesota.

The TGB/VET Programs apply to state-funded highway construction and professional/technical services contracts. MnDOT began applying these programs as follows:

It began applying the VET Program to highway construction projects in 2010;

In 2013, it began applying the TGB Program to highway construction projects.

It expanded the VET and TGB Programs to include professional/technical services contracts in 2014 (first contract goals applied in 2015).

Certified firms are identified through the following means:

MnDOT uses the TGB directory administered by the Minnesota Department of Administration to identify eligible TGBs. Beginning in 2016, certified DBEs based in Minnesota were considered to be TGBs.1

For the VET Program, MnDOT uses the VetBiz directory through the U.S. Department of Veteran Affairs as well as certification through the State of Minnesota.

At the time of this report, these programs do not extend to locally-awarded contracts that use state money administered through MnDOT.

Preference. Targeted Group and Veteran-Owned Small business may be eligible up to a 6 percent preference of the amount of their bid for the first $1 million, not to exceed $60,000 for state-funded construction, and professional and technical services contracts.

1 Eligible DBEs still need to apply to the TGB program administered by the Minnesota Department of Administration.


Contract goals. MnDOT sets TGB and VET participation goals based on the nature of the contract amount and availability of TGB and VET businesses to perform the work. (Contracts below $250,000 are usually assigned 0 percent goals.) To calculate the contract goal, MnDOT Office of Civil Rights:

Receives scope of work, project breakdown and cost estimates from the MnDOT District Office;

Identifies TGB/VET firms that are ready, willing and able to perform different areas of the scope of work; and

Calculates the overall goal that is the ratio of the dollar value for the areas identified for possible TGB/VET participation and the total cost of the project.

Bidders must either meet the TGB/VET goal for a contract or show good faith efforts to do so.

Other measures to assist minority- and women-owned business and other small businesses. MnDOT has partnered with other state agencies such as the Minnesota Department of Administration and Department of Employment and Economic Development to increase the number of eligible TGB/VET businesses. It has also simplified TGB/VET contract special provisions forms using plain language; and supported the DBE and Workforce Collaborative stakeholder group to increase the participation of small business contracting.

B. Other Federal, State and Local Government Programs

MnDOT is a recipient of U.S. Department of Transportation funds and applies the Federal Disadvantaged Business Enterprise (DBE) Program to contracts that are USDOT-funded. It sets DBE contract goals on eligible contracts.

Each of the other eight participating entities has programs that assist small businesses, and sometimes minority- and women-owned companies. In some cases, those entities apply the Federal DBE Program to contracts funded by USDOT money received through MnDOT.

Appendix K provides more information about these programs.

C. Business Assistance and Other Programs in Minnesota

There is a broad range of other technical assistance, networking, financial and bonding assistance, and general small business assistance in Minnesota. As one example, the Minnesota Procurement Technical Assistance Center (PTAC) provides a wide range of counseling, bid-matching services, matchmaking events and other assistance to Minnesota businesses. (See Appendix K for more information.)


D. Reported TGB and VET Participation

Figures 3-1 and 3-2 present MnDOT reports concerning prime contracts and subcontracts awarded to TGB/VET businesses during fiscal years 2014 and 2015. The data are for construction and professional and technical services contracts that MnDOT reviewed for a goal.

Figure 3-1. MnDOT construction and professional and technical services prime contracts awarded to TGB/VET businesses, FY 2014–FY 2015

Source: MnDOT Targeted Group Business and Veteran-Owned Small Business Programs report FY 2014-15,

February 1, 2016.

As shown in Figure 4-2, participation of TGB and VET businesses as subcontractors exceeded prime contract dollars presented in Figure 4-1.

Figure 3-2. MnDOT construction and professional and technical services subcontracts awarded to TGB/VET businesses, FY 2014–FY 2015

Source: MnDOT Targeted Group Business and Veteran-Owned Small Business Programs report FY 2014-15,

February 1, 2016.

FY 2014 107 $ 9,387,671 8 $ 1,770,668 FY 2015 81 10,676,915 6 619,856

Numberof contracts

Numberof contracts

Dollarsawarded

TGB VETDollars

awarded

FY 2014 108 $ 6,488,638 73 $ 3,083,297 FY 2015 148 15,832,319 106 5,102,805

TGB VETNumber

of contractsDollars

awardedNumber

of contractsDollars

awarded


CHAPTER 4. MnDOT Contracts

Many components of the disparity study require participating entity contract and subcontract data as building blocks. As a first step in the availability research, for example, Keen Independent identified the geographic area from which the Minnesota Department of Transportation draws contractors and vendors and the types of work involved in MnDOT contracts. The study team’s utilization and disparity analyses for MnDOT are based on information from prime contracts and subcontracts.

Before conducting other analyses, Keen Independent collected information for MnDOT contracts for the July 2011 through June 2016 study period. Chapter 4 describes the study team’s process for compiling and merging these data. Chapter 4 consists of four parts:

A. Overview of MnDOT contracts;

B. Collection and analysis of MnDOT contract data;

C. Types of work involved in MnDOT contracts; and

D. Location of businesses receiving MnDOT contracts.

Appendix C provides additional detail concerning collection and analysis of contract data.

A. Overview of MnDOT Contracts

The disparity study for MnDOT focuses on state-funded construction and professional and technical services contracts. Contracts using U.S. Department of Transportation funds were not included. Goods and other services purchases that the Minnesota Department of Administration made on behalf of MnDOT are also excluded from the MnDOT study. Contracts examined were:

Trunk and highway construction contracts; and

Professional and technical services contracts.

Keen Independent examined prime contracts awarded within the July 1, 2011 through June 30, 2016 study period, and any data on associated subcontracts (even if awarded after June 30, 2016). The start and end dates of the study period match the state fiscal year.


B. Collection and Analysis of MnDOT Contract Data

As shown in Figure 4-1, Keen Independent collected data on MnDOT contracts from the Office of Civil Rights and the Office of Professional Technical Consultant Services. Appendix C provides more information about this process.

These data sources provided information about award date, dollars, location (region), and general description of the work. They also indicated whether or not TGB and VET contract goals were applied to the contract.

Prime contracts. Keen Independent examined award amounts for highway construction and professional and technical services contracts for MnDOT during the study period.

Subcontracts. The MnDOT Office of Civil Rights provided data on subcontracts on these construction and professional and technical services contracts. Keen Independent supplemented this information from IC134 data, as necessary.

The study team separated the dollars for a contract into those going to subcontractors from the dollars retained by the prime contractor (or subconsultants and the prime consultant on professional services contracts). Keen Independent calculated the total dollars retained by the prime contractor by subtracting subcontractor dollars from the total contract value. Appendix C discusses these data in more detail.

Coding the type of construction or services provided. To code the primary type of work involved in each contract or subcontract, Keen Independent examined the description in the contract files or researched the type of work performed by the contractor or vendor when a description was not available in the procurement record.

When contracts or subcontracts pertained to multiple types of work, Keen Independent coded the entire work element based on what appeared to be the predominant type of work in the contract or subcontract. For example, if a subcontract included fencing and landscaping, and it appeared that the work was predominantly fencing, the entire subcontract was coded as fencing.1 Similarly, when a more specialized activity could not be identified as the primary area of work, these contracts were classified as general building construction, as appropriate.

1 Data concerning subcontract awards or payments were for the entire subcontract, not individual work elements.

Figure 4-1. Collection of MnDOT contract data


Coding the region for location-specific contracts. Keen Independent examined geographic location of contracts based on the six regions shown in Figure 4-8. The region for a contract corresponds to the physical location of the project, not the address of the contractor or vendor. Keen Independent coded statewide assignments and work not in a single physical location as “statewide.”

Contracts not included. Keen Independent focused on procurements made with for-profit companies related to state-funded highway-related construction as well as professional and technical services contracts. All other contracts were excluded. For example, goods and other services procured by Admin on behalf of MnDOT were included in the disparity study for the Department of Administration, not in the MnDOT study.

Exclusion of USDOT-funded contracts. As the Federal DBE Program applies to USDOT-funded contracts awarded by MnDOT, those contracts were outside the scope of this study.

Exclusion of payments to non-businesses, for real property purchase or lease, and for certain types of work. The study team excluded MnDOT construction and professional services contracts with public sector or not-for-profit agencies. Appendix C describes other exclusions in the disparity study.

Exclusion of very small purchases. The study team examined procurements that totaled more than $2,000 in payments. This accounted for more than 99 percent of the total contract dollars during the study period (before exclusions). However, all subcontracts provided were included, regardless of size.

C. Types of Work Involved in MnDOT Contracts

Figure 4-2 presents the final number and dollar value of MnDOT contracts included in the disparity study.

Figure 4-2. Number and dollars of MnDOT contracts and subcontracts, July 2011–June 2016

Note: Numbers may not add due to rounding.

Source: Keen Independent from MnDOT contract data.

Construction 4,025 $ 1,083Professional services 3,338 561

Total 7,363 $ 1,644

Number of contracts

Dollars(millions)


Contract dollars by type of work. Figure 4-3 presents information about contract dollars for the different types of prime contract and subcontract work on construction contracts. Dollars for prime contracts are based on the contract dollars retained (i.e., not subcontracted out) by the prime contractor or prime consultant. Types of work that did not fit into the specific categories listed in Figure 4-3 were included in the “other” subgroups within each of the four industries (e.g., “other construction”).

Highway and street construction plus bridge or elevated highway construction were the two largest areas of MnDOT construction contracts based on retained contract dollars. They were followed by excavation, site preparation, grading and drainage work, building materials, and electrical work (which includes lighting and signals).

Figure 4-3. MnDOT construction contract dollars by type of work, July 2011–June 2016


Type of work

Highway and street construction $ 670,991 62.0 %Bridge or elevated highway construction 55,387 5.1Excavation, site prep, grading and drainage 49,347 4.6Building materials 33,830 3.1Electrical work including lighting and signals 25,541 2.4Underground utilities, including water and sewer lines 25,227 2.3Concrete work 20,641 1.9Installation of guardrails or signs 19,592 1.8Sign and traffic control equip rental 18,480 1.7Landscape installation and maintenance 18,141 1.7Public or commercial building construction 11,497 1.1Road construction or paving 9,569 0.9Architecture and engineering 8,575 0.8Trucking and hauling 5,915 0.5Plumbing, heating or air conditioning 4,660 0.4Electrical equipment 4,209 0.4Construction equipment rental 3,674 0.3Structural steel work 3,001 0.3Heavy construction equipment 2,126 0.2Plastering, drywall or insulation 759 0.1Industrial equipment 736 0.1IT and data services 71 0.0Inspection and testing 6 0.0Other construction 82,441 7.6Other non-construction 8,143 0.8

Total $ 1,082,558 100.0 %

Total

(1,000s)Dollars

Percent


As shown in Figure 4-4, most MnDOT professional services work was architecture and engineering and construction management.

Figure 4-4. MnDOT professional services contract dollars by type of work, July 2011–June 2016


D. Location of Businesses Receiving MnDOT Contracts

Analyses of local marketplace conditions and the availability of firms to perform contracts and subcontracts focus on the “relevant geographic market area” for MnDOT state-funded highway construction and professional services contracts. The relevant geographic market area was determined through the following steps:

For each prime contractor and subcontractor, Keen Independent determined whether the company had a business establishment in Minnesota or the two counties in western Wisconsin that are part of the Minneapolis-St. Paul Metropolitan Area (Pierce and St. Croix counties) based upon MnDOT vendor records and additional research.

Keen Independent then added the dollars for firms with Minnesota and the two Wisconsin county locations and compared the total with that for all companies.

The study team totaled dollars by firm location based on data for July 2011 through June 2016.

The analysis described above found that 94 percent of combined MnDOT contract dollars went to firms with locations in Minnesota (or the two Wisconsin counties). As shown in Figure 4-5, the share of MnDOT contract dollars going to companies with local offices was 96 percent for construction contracts and 92 percent for professional services contracts.

Type of work

Architecture and engineering $ 221,734 39.5 %Construction management 161,240 28.7Other professional ser

Documents

2017 MINNESOTA JOINT DISPARITY STUDY Independent MnDOT... · 2019-07-16 · The 2017 Minnesota Joint Disparity Study examines whether there is a level playing field for minority-