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Abusers of minority programs beware

Gaming the MBE/WBE system

Dr. Fred McKinney

Vindictiveness is not a characteristic that is appealing to most, nor is kicking someone while they are down. But at the risk of sullying perceptions of my character, there was an important decision announced by the U.S. Attorney’s office recently that deserves additional exposure, not for the sake of further embarrassing the company that suffered this public and financial humiliation, but because it should provide a strong teaching lesson to other companies that have also committed or contemplated similar acts. The incident I am speaking about is the $2.4 million fine imposed on the Plainville-based construction company Manafort Brothers.

Manafort Brothers agreed to the fine and changes in its management team and structure in response to their admission of fraud related to a federally funded construction project in Connecticut. The details of this incident have not been totally revealed in the press release issued by the Federal Bureau of Investigation, but it is known that Manafort Brothers’ behavior involved the misuse of the Disadvantaged Business Enterprise (DBE) program.

The DBE is a program that certifies businesses based on economic disadvantage for contracts funded by the U.S. Department of Transportation and managed by state departments of transportation. The purpose of the DBE program is to increase economic opportunity and participation by disadvantaged businesses on federal contracts.

In 2007, Manafort Brothers was the lowest responsible bidder on a $40 million contract to improve some roads in Connecticut. Part of their contract submission included the use of a specific DBE. This DBE was a subcontractor on the job. However, the investigation by the FBI, the DOT and several other agencies indicated that the DBE was simply a “pass-through” that allowed Manafort Brothers to continue using subcontractors other than the DBE of record.

This is one of the oldest games in town, and one of the most common abuses of DBE and Minority Business Enterprise (MBE) programs inside and outside of federal contracting. A pass-through occurs when a subcontractor, usually a DBE, a MBE or a Women Business Enterprise, is used by a prime contractor whereby the prime agrees to pay the pass-through firm as a subcontractor, but the subcontractor agrees to subcontract the work to non-diverse firms.

The “benefit” to the prime contractor is that they get to continue working with companies they want to work with while appearing to be in compliance with the goals of the diverse program, in this case the DBE program of the U.S. Department of Transportation. But make no mistake this is an abuse that takes place in the private and public sector, and not just in the DBE program. In pass-through contracts, very little employment or wealth is created in minority firms or minority communities.

The purpose of these fines and other resolutions is to send a strong and unequivocal message to the offending company, but also to send a shot across the bow of other companies contemplating similar abuses of the law. One aspect of the settlement that Manafort Brothers agreed to was to implement changes in their procurement practices and to bring in independent outside experts to educate senior management on DBE compliance.

For other federal contractors, this fine and settlement should serve as an important reminder that laws intended to promote economic inclusion of DBEs, MBEs, WBEs and others are there for a reason and attempts to avoid, skirt, and abuse such laws occasionally have significant financial and criminal consequences.

As the president and CEO of the Greater New England Minority Supplier Development Council, I think this is the most important legal action taken in support of minority business in the history of our organization here in Connecticut. Laws and policies without consequences and enforcement are soon ignored. It is about time and long overdue that the legitimate diverse business community has had the support of the federal government in this regard. For the abusers of the law who have not been caught, now is the time to review your own actions. The authorities are watching.

At the end of the day, the DBE and diverse business programs are in place to spread the wealth to people, businesses and communities who for reasons of history have not been included in the creation of wealth, particularly when it comes to public dollars. These programs are needed today at least as much as when they were first created.

And part of the reason why they are needed today is that there has not been the enforcement behind the intent of these laws. There is now an optimism and an opportunity for us to reach the goals of this program so that at some point in the future we can wind down these programs.

But now is not even close to the time when we can contemplate this eventuality. However, because of the recent actions of the Federal government we are closer to that day.

Dr. Fred McKinney is president and CEO of the Greater New England Minority Supplier Development Council.