If you are a regular reader of our blog, you will likely recognize that our firm has been actively involved and concerned with the results of Washington State Department of Transportation’s (“WSDOT”) Disparity Study, which impacts both Disadvantaged Business Enterprises (“DBE”) and general contractors who bid on federally-funded projects with DBE goals.  On June 1, 2017, WSDOT implemented a “waiver”, which excluded Caucasian women-owned firms (“WBEs”) from qualifying for Condition of Award DBE Goals on federally-funded projects.  This drastic action was the result of WSDOT’s highly criticized 2012 Disparity Study conducted by BBC Research & Consulting of Denver, Colorado, which concluded non-minority women-owned firms do not face “substantial disparities” in the federally-funded transportation contracting market.

BBC’s study was criticized for a number of reasons, but most concerning was BBC’s flawed and unreliable statistical methodology that did not accurately represent true marketplace conditions.  See Ahlers & Cressman letter of January 9, 2014 and Associated General Contractors of Washington article.  For example, BBC’s results showed both decreasing WBE availability and availability vastly out of range with other states (e.g., the availability of women-owned construction firms in Washington was just 1.5% compared to 11.96% in Oregon).  Nevertheless, based on this flawed BBC study and BBC’s assertion that women-owned firms did not face disparities, WSDOT sought and on June 1, 2017 was granted a waiver precluding general contractors from counting WBE firms towards their DBE goals on federally funded public works projects.

Just over three months since the hasty waiver was implemented, however, WSDOT has now obtained the results of the new Disparity Study and, on September 13, 2017, reversed its position.  WSDOT’s letter to the Federal Highway Administration (a) states that the result of the 2017 Disparity Study (analyzing Federal Fiscal Years 2012 through 2015) confirms that non-minority women-owned businesses are not on “level playing field” for federally-funded WSDOT contracts (i.e., there is a substantial disparity), and (b) requests that the waiver be rescinded.

As further background, the DBE program was created by Congress with the goal of increasing women and minority-owned business participation in federally-funded transportation contracting. Despite numerous challenges, courts have consistently upheld the validity and constitutionality of the DBE program.  To meet the strict scrutiny requirements imposed by the courts, however, each state must tailor its implementation of the DBE program to the specific discrimination found to exist in that state.  Every three years, therefore, WSDOT must conduct a “Disparity Study,” aimed at statistically measuring the “discrimination” in the marketplace, i.e., the level of DBE participation that would be expected in that state, absent the effects of discrimination. 49 C.F.R. 26.45(b).  WSDOT’s DBE program is based upon the findings of its then current Disparity Study.

For WSDOT’s 2017 Disparity Study, WSDOT hired a new firm, Colette Holt & Associates (“CHA”).  CHA’s Disparity Study was released on September 11, 2017.  The Study finds that:

A “large” or “substantively significant” disparity is commonly defined by courts as utilization that is equal to or less than 80 percent of the availability measure. A substantively significant disparity supports the inference that the result may be caused by the disparate impacts of discrimination.

CHA Study at p. 101.  The study provides the following disparity ratio conclusions for Federal Highway Administration (FHWA) funded contracts and Federal Transit Administration (FTA) contracts:

See CHA Disparity Study at p. 10.   Thus, for FHWA-Funded contracts, African American-owned firms (male and female) have the highest level of disparity, followed by WBEs and Asian-owned firmed, then Hispanic-owned firms.  The Native American disparity ratios show that there is not a disparity, but this may be slightly skewed.  Under the federal regulations, Native American-owned firms include businesses owned by tribes—not just firms owned by individuals.  Tribally owned firms also do not have to meet the same personal net worth limits and often are able to secure significant contracts, including prime contracts, that are not feasible for individual-owned DBE firms.  These tribally-owned firms are included in the Native American disparity analysis, which likely explains the higher ratio.  For FTA-funded contracts, the disparity levels were much different, showing a much higher overall disparity for all DBE firms.

In contrast, for state funded contracts for which DBE goals were not established, DBEs experienced a disparity ratio of 33.5 percent, including a ratio of 34.3 percent for Caucasian women.  The Study concludes that “[t]he clear inference is that in the absence of contract goals as demonstrated by utilization on state contracts, the playing field for DBEs on federally-assisted contracts would not be level.”

Beyond the statistical analysis, the Study also presents and considers anecdotal data that strongly supports the conclusion that minorities and women continue to suffer discriminatory barriers to full and fair access to contract and subcontract opportunities.  For example, many minority and woman owners reported that they continue to encounter discriminatory biases about minorities’ and women’s lack of competence in obtaining and performing contracts.  Similarly, minority and Caucasian women reported routine gender bias in the industry and the continuing effects of stereotypes and gender roles, including reports of clients and staff desiring to work with male colleagues “to get stuff done” or questioning a woman owner’s role (“They thought we were the office staff”). E.g., CHA Disparity Study at p. 118-125.

Accordingly, the Study recommends that WSDOT continue to utilize contract goals and include all groups for credit towards meeting contract goals, which in turn led to WSDOT requesting the retraction of the WBE waiver.  While we are still reviewing the detailed CHA Disparity Study, it demonstrates that a change in methodology can produce very different results, and it is critical that these studies be reviewed carefully to ensure they are accurately reflecting the marketplace.

One of the largest benefits, however, of the CHA Disparity Study and the WBE waiver retraction is that there will be additional DBE firms for general contractors to utilize to meet Project goals.  Notably, the CHA Disparity Study includes comments from both DBEs and general contractors interviewed by CHA that highlight a number of common complaints with respect to the WBE waiver and DBE program as a whole. For example, a number of general contractor comments were included that took issue with the lack of capacity and availability of firms to meet the DBE goals, which has only been exacerbated by the WBE waiver.  One general contractor comment stated:

“The biggest problem…is the capacity and availability versus the goals on specific projects. When we bid a job that’s got 15% or 25% DBE goals on it, and there’s hardly anybody to do the work, two things happen. Either we can’t do it, or we end up paying a subcontractor immense amounts of money to do it, and the taxpayer pays. … My problem with taking the female owned businesses off the table is you just made it harder for me to meet the goal. We have problems every single day meeting those goals.”

Comments from Eastern Washington were even more critical as the number and availability of DBE contractors in that region is even lower:

“There is no one in our industry other than maybe one or two in all of eastern Washington that meet it outside of women-owned businesses, white women-owned businesses. There are just no [minority-owned] DBEs available in eastern Washington.”

“The problem is that you have people saying that they are capable to do this job when they have no idea. They don’t have the capabilities to financially do it. You got this office [Office of Minority and Women Business Enterprises or OMWBE] that says, ‘No, they said they could do it. We certified them, what are you doing against them? How come you’re beating up on them? They’re minority, they need some help.’ You pull money out of your pocket, you put people on their payroll, you buy them the class B signs and pray to God you get done with the job before somebody gets killed.”

The remaining comments highlight a number of DBE program criticisms, including that DBEs are over capacity given the amount of concurrent work, the overall goals are unattainable, there is a narrow interpretation of a DBE’s certified scope of work making it more difficult to use DBEs, the higher prices for DBE work, and performance issues of some DBEs yet prohibition of general contractors from assisting that DBE (to avoid the appearance of a pass through) or substituting a non-performing DBE.

It is abundantly clear from the CHA Disparity Study that there are a number of issues that still need to be addressed as part of the DBE program to ensure that it is serving the purpose it should be.  WSDOT’s quick reaction to the CHA Disparity Study’s findings and request for rescission of the WBE waiver, however, is a good start.  We will provide updates as to FHWA’s response to WSDOT’s request as soon as we know more.

COMMENT:  It is puzzling why WSDOT, an avowed supporter of small, minority, and women-owned businesses, would have taken the ill-considered and precipitous action to eliminate non-minority women from counting towards condition of award goals.  As confirmed by the CHA Disparity Study, woman-owned businesses are a group of entrepreneurs who routinely and consistently face barriers and biases in obtaining and performing work in the construction industry.  Woman-owned businesses have also demonstrated that the WSDOT DBE program works as woman-owned businesses routinely “graduate” from the DBE program (i.e., enjoy success such that they no longer need or qualify for assistance from the DBE program).  The haste with which WSDOT decided to eliminate non-minority women from counting on condition of award goals, based on a flawed study, calls into question the even handedness of WSDOT in administering the program to benefit all qualified DBE groups rather than favoring one DBE segment over the other.  Again, as indicated above, despite some variances in the disparity ratios, the CHA Disparity Study recommends that all groups be included for credit towards contract goals.  Perhaps WSDOT’s clear misstep will temper future rash and unsupported decisions that have the potential to cause serious harm to the very entities WSDOT and OMWBE seek to promote.

Source: AC Lawyers

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