We advised you in our blog of September 6, 2011 that the City of Seattle on August 24, 2011 announced its new Women and Minority Business Enterprise Inclusion Plan (“Plan”). Mayor McGuine is quoted saying: “we are committed to insuring everyone in the community has equal access to jobs and opportunities.” The City advised contractors and the public that “the City wants inclusion – it is a core value.It builds our communities, our diversity, it equalizes some of the vast differentials we seek, particularly in these economic times, among our Seattle communities. It makes for a stronger City.”
The Plan’s “efficacy” was demonstrated in a recent City bid of the Rainier Beach Community Center Redevelopment Project (the “Community Center”). The Community Center bid provides some insights and answers as to how the City interprets its Plan. Ahlers & Cressman obtained the specific bidding information in a public records request. (Click here for the calculation charts).
To follow the City’s process, a few calculations must be made and statistics compiled. Each bidder on a City of Seattle project with a value of $300,000 or more must now include a completed Inclusion Plan with its bid. A completed Plan requires that the bidder not only fill in the required information but obtain 10 of 18 possible points that are available under the Plan’s score criteria. The points are based on Market Availability after the bids have been opened. For projects over $2 million, the bidder must also retain a W/MBE (Women/Minority Business Enterprise) Expert, provide information about that expert’s W/MBE outreach efforts (similar to the good faith requirement in federal contracting) before the bid, and include the bidder’s plan to incorporate more WMBEs after the bid has been awarded.
As will be demonstrated, obtaining 10 of 18 points has little to do with the Plan’s lofty goal of increasing W/MBE participation in City projects. The points are calculated as follows:
- Past Performance Data. The Past Performance Data (“PPD”) for various types of projects is published by the City and is summarized in the chart set forth below.
2010 – 3 year average
|Park Development||25 %|
|Remote Location||0 %|
For the Rainier Beach Community Center Redevelopment, which is a “facility,” the PPD is 23%. The City’s calculation of “facility” projects is likely artificially inflated because the figure does not account for the Seattle Center projects, which are primarily “facility” projects.
- Bid Pool Data. The Bid Pool Data (“BPD”) is calculated by averaging the W/MBE goals (a figure purely discretionary with the bidder) that each bidder lists on its form. In this instance, the 7 bids have an average of 36.25% W/MBE goals. When the BPD and the PPD are averaged, the “Market Availability” (“MA”) figure is calculated. In this instance the BPD is 36.25%, the PPD is 23%, thus the MA is 29.62% [(36.25 + 23)]/ 2].
- Scoring. The City uses the MA to calculate the following three scores:
- Score No. 1: The Bidder’s W/MBE Goal.
The first score that each bidder receives is calculated by taking the bidder’s MBE goal and dividing it by the MA figure of 29.62% and multiplying that quotient by 6.
Berschauer in the above example obtained a Score No. 1 of 3.4. That figure was arrived at by dividing 17% (Berschauer’s W/MBE goal) by the MA figure of 29.62% and multiplying that quotient by 6.
- Score No. 2: The Bidder’s W/MBE Estimated Value.
Score No. 2 is arrived at by comparing the Scope of Work and Supply Opportunities (a figure purely discretionary with the bidder) listed by the bidder with the MA. To the extent that Score No. 2 meets or exceeds the MA, the bidder is provided 6 points.
Above, Berschauer stated that its W/MBE estimated value was $9,789,400, which is 62% of its bid. This “estimate” exceeds the MA of 29.62%, thus, Berschauer was awarded 6 points.
- Score No. 3: The Bidder’s W/MBE Committed Contract Amount.
Score No. 3 is arrived at by dividing the bidder’s W/MBE Commitment figure by the Base Bid figure, then multiplying that quotient by the MA number, and finally multiplying that product by 6.
- Final Score.
The final score is arrived at by adding Score No. 1, Score No. 2, and Score No. 3. As long as the final score is 10 or more, the contractor passes.
These bid results highlight the failure of the well intentioned Inclusion Plan.
- Score No. 1. The calculation of Score No. 1 allows a bidder to set an arbitrary and perhaps unrealistically high W/MBE goal, which then assures the bidder of maximum points by manipulating the MA. This bid strategy gives the unscrupulous bidder a leg up, to the detriment of other bidders who are setting realistic and achievable goals. The City’s plan contains no provision to hold the bidder who “games” the system accountable.
- Score No. 2. When calculating Score No. 2, the bid strategist can manipulate the Scope of Work and Supply opportunities to achieve maximum points without accountability or recourse against such manipulation.
- By manipulating Score No. 1 and Score No. 2, the bidder is virtually assured over 10 points, which is the pass/fail criterion that the City uses.
- Score No. 3.If the purpose of the City’s plan is to encourage participation of W/MBE contractors in City public works projects, the most important of all the scores is Score No. 3, the actual commitment the bidder makes to the W/MBE contractors. Regrettably, Score No. 3 is relegated to virtual irrelevance by the strategic manipulation allowed in Score No. 1 and Score No. 2.
- Here, the low bidder had a 67% stated goal, and obtained 13.9 points, a passing grade by the plan, but will end up with only 9% of its work being subcontracted to W/MBE.
CE&C, the low bidder on the community center project, was touted in the press release to have a 66% W/MBE participation on the project; however, its actual commitment to W/MBE contractors was only 9%. The second responsive bidder, Absher, did not artificially exaggerate its W/MBE dollars. It had a PPD of 28% and an actual commitment of 28%, which exceeded the PPD of 23%. If the goal of the City is to increase W/MBE, W/MBE participation Absher was actually the low responsive and responsible bidder who should have ended up with the contract award.
Interestingly, the City included contractor Rushforth Construction in the scoring, however Rushforth was determined to be nonresponsive. Nevertheless, the City included Rushforth in the statistical analysis, highlighting another inconsistency.
Practice Pointer: What became clear to us in analyzing the Rainier Beach Community Centerbid is that a bidder can readily score over 10 points and not game the system. Bidders that inflated the W/MBE goal and those that did not, both obtained a passing score. The City provides no reward or incentive to bidders who obtain a Final Score of greater than 10 points. Although there is no penalty for artificially inflating the W/MBE goal, there is also no practical reason to do so, since attaining the 10 points (the “pass/fail” grade) can be readily obtained without artificially increasing a bidder’s W/MBE participation numbers. The downside of artificially inflating of the W/MBE goal is that the City is publishing W/MBE participation in press releases at figures that were unattainable and are unrealistic. Inflating the participation hurts both W/MBE contractors and general contractors when public works owners publish inflated statistical numbers that bear no relation to actual W/MBE contractor participation in the public works projects.
The City’s well intentioned plan does not appear to be achieving the Mayor’s goal of increasing small disadvantaged business participation in City contracts. The selection of CE&C was made on the representation that it would achieve 66% minority and women’s subcontractors, but actually only committed to 9%! If the City wants to truly increase W/MBE participation, it should give more weight to the selection to the contractor’s bid that makes a commitment to the W/MBE community, rather than allowing contractors to simply puff up W/MBE goals to obtain meaningless extra points. CE&C’s 9% commitment to the W/MBE community is far below the level of the City’s calculated “Facility” PPD percentage of 23%.