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Minority goals don't add up

Thursday, June 08, 2000

By Bill Moushey, Post-Gazette Staff Writer

CONSTRUCTION CHARADE
First Of Two Articles

In April, members of the Pittsburgh Sports & Exhibition Authority announced that about 35 percent of the contracts awarded for construction of PNC Park, the new Steelers stadium and the expansion of the David L. Lawrence Convention Center had gone to firms owned by minorities and women.

 
  Kathleen Kerr, of Industrial Fabricating Systems Inc., has sued two steel contractors and the Sports & Exhibition Authority..( Bill Wade, Post-Gazette)

That was right in line with the authority's goals on the $1 billion package of projects.

Yet a three-month Post-Gazette investigation has found that at least a third of the $117 million in contracts that went to these businesses through the end of March has been passed through to firms owned and managed by white males or to companies that no longer qualify as disadvantaged under the certification process the authority says it uses.

The Post-Gazette reported Tuesday that federal agents were examining whether contractors working on the stadium and convention center projects violated the law by using sham companies to meet the authority's minority and woman-owned business set-aside goals. After that story was published, Allegheny County Executive Jim Roddey said he had asked FBI to investigate the awarding of contracts for the projects.

The federal investigation follows lawsuits filed in February against the authority and two steel companies that had contracted with the sports teams to supply $61.5 million in steel for the fast-moving projects.

In those suits, Kathleen Kerr of Industrial Fabricating Systems Inc. in Coraopolis claimed the two companies, Hirschfeld Steel Co. of San Angelo, Texas, the primary steel provider for the Steelers stadium, and Wilhelm and Kruse Inc., of Rankin, which is providing steel for PNC Park, demanded that she participate in an illegal "pass-through" scheme. Both companies have denied any wrongdoing.

Over the past three months, the Post-Gazette made unannounced visits to 50 firms listed as minority- or woman-owned that had received contracts for stadium or convention center projects.

Only a handful had plants or warehouses containing the supplies and equipment needed to perform the work or services specified in their contracts.

The newspaper then checked the contracts these companies received against who actually is performing the work.

The findings:

At least $36 million in contracts -- 31 percent of the total awarded to minority- and woman-owned firms -- went to brokers and suppliers who simply turned over most of the work to firms owned by white males.

Another 10 contracts -- valued at $4.8 million or or 4.1 percent of the minority- and woman-owned total -- were given to companies headed by the wives or daughters of white, male contractors with long histories in the construction business. The real owners of most of these companies are white men, the managers are white men and most of the employees are white men, according to Allegheny County records.

Contracts worth another $5 million -- or 4.2 percent of the total going to minority- or woman-owned businesses -- are being performed by companies that are not certified by Allegheny County or the other Pennsylvania jurisdictions the authority recognizes for certification.

In theory, the Sports & Exhibition Authority requires this certification to ensure that disadvantaged minority- and woman-owned businesses are legitimate. But the Post-Gazette found that the authority sometimes does not require certification; sometimes overlooks some certification standards; and accepts certification from out-of-state jurisdictions whose rules may be lax.

The result: At least $44 million of the $117 million in minority and women participation cited by the Sports & Exhibition Authority is being done primarily by white males at white-owned businesses or by companies that no longer qualified.

 
Stephen Leeper, director of the Sports & Exhibition Authority, said he was unaware of any wrongdoing. (Steve Mellon, Post-Gazette) 

Pledges action

Stephen Leeper, the authority's director, said he had no knowledge of such activities until he was questioned about them by the newspaper. Leeper said he has ordered authority to study the way minority and women contracts are being handled.

"We are doing a case study of five or 10 of the prime contractors to find out what happened," he said.

Leeper has pledged to take action if the authority's findings match those of the Post Gazette.

"I think we would need to deduct that from the money that has been previously credited toward minority- and female-owned business," he said.

The way the sports authority has tallied work for minorities and women overstates the actual participation of such firms.

Last year, the sports authority decided to follow City of Pittsburgh policy, which allows any contract awarded to a minority or woman-owned business to be calculated at its full value, even if the company assigns most of the work to non-minority subcontractors.

"Consistent with city policy, all supply contracts are counted at 100 percent of face value," wrote Clarence F. Curry, one of three compliance officers who oversee minority and women participation on the jobs. "Allegheny County may have different policies."

Indeed, Allegheny County and most other jurisdictions checked by the Post-Gazette have policies that at least on paper seek to ensure that minority- and woman-owned firms who receive preferential treatment actually have the resources to perform the work and are credited only for the work they perform.

Leeper said the authority has no such policy, despite the fact that the authority, the Pirates and Steelers have budgeted almost $200,000 for three compliance officers to oversee woman and minority contracts on the projects. The authority said the officers had so far filed no on-site reports about the actions of minority- or woman-owned businesses. Nor have they been asked to.

Not a problem?

 
   
Construction Charade

A Rocky Road For Minorities And Women


TOMORROW: Even black firm can't compete


Bill Moushey can be reached via e-mail at: Bmoushey@post-gazette.com

Post-Gazette staff writer Bob Martinson contributed to this report.

 
 

What may be more troubling is that during the bidding process, the Sports & Exhibition Authority found nothing wrong with prime contractors awarding contracts to minority and women brokers and suppliers who simply transfer work to firms owned and managed by white males.

These white contractors find it easier to link up with what are essentially sham companies who pass through the contracts they receive to white-owned firms that they have worked with before, or even back to the contractors themselves. In the process, the pass-through companies often earn a fee that adds to the project's overhead.

Leeper agreed that problems exist with minority participation in the jobs, admitting it is an area that always can be improved upon.

One problem, he said, is that white primary contractors have difficulty finding qualified minority- and woman-owned firms to do construction work.

"I just think the issue is when you have the significant amount of work this area is experiencing, it is difficult to get contractors, period, minority or majority. It puts pressure on existing firms. It certainly is a challenge when you have a robust construction economy like we have in Pittsburgh," Leeper said.

Pittsburgh City Councilman Sala Udin, who has pressed hard to make sure legitimate minority-owned businesses are represented in the stadium and convention center projects, said the problems on these projects go way beyond the issue of availability.

"There is no really strong political will for [the Sports & Exhibition Authority] to be strident in their enforcement of the guidelines because the goal is to get these projects moving," Udin said.

"And if they at least give the appearance of compliance with the goals, then that's sufficient because we're not going to actually withdraw somebody's contract for noncompliance."

Just passing through

T.N. Walker's plumbing supply business is located in a split-level ranch-style home on Field Club Ridge Road in O'Hara.

Walker, recognized by the Sports & Exhibition Authority as a minority business enterprise, recently won $2 million in contracts to provide plumbing, heating and air conditioning supplies for the baseball and football stadiums.

A visit to the street listed on Walker's minority business application showed no evidence of plumbing supplies or the space to store them. Walker's application listed one full-time employee -- himself.

He will pass along virtually all the work and most of the money from his stadium contracts to non-minority-owned companies, which will ship the products directly to the stadium sites. At most, he'll either check the products to make sure they arrived safely, or send someone else to do it.

That fact didn't keep the Sports & Exhibition Authority in March from including the entire $2 million from Walker's contracts in the $117 million it said had been awarded to minority and woman-owned businesses for work on the Plan B projects.

The Post-Gazette investigation found 19 similar businesses that received contracts to provide supplies and services.

For his part, Walker defended the $2 million in contracts he received. Late last year, his certification under the county's disadvantaged business enterprise program was reduced from dealer/supplier to broker after an onsite visit determined that the amount of products he stocked was not sufficient. But Walker appealed and his status as a supplier-dealer was reinstated in May.

He said his business grew out of storage tank removal business in the 1980s that went bad. During the bidding process, he said he "does the same thing other contractors do: I look at a job and make a bid. I win some and I lose some."

He said he has a warehouse in Lawrenceville and another office. He declined to show them to a reporter. He also declined to say how much he would earn on the $2 million in contracts he received.

"I store things when it's necessary, but I've been in HVAC and plumbing supplies for 17 years," Walker said. "I don't get involved with the other guys, but I think there are a lot of guys with no experience in construction just running things through their businesses."

Walker's method of doing business is by no means unique.

For instance, the Allegheny Group of Blawnox, owned by Faye O. Ritter, is certified as a woman-owned business by Allegheny County to provide office and plant furniture, industrial and electrical supplies, motor controls, construction material and harness and cable assemblies. But on the stadium jobs, the firm has $1.7 million in contracts for heating, cooling and plumbing supplies. The company is not certified for that work.

Access Energy Solutions, which is located in a slate-roofed, Tudor-style home on Hawthorne Street in Canonsburg, has a $1,668,660 contract to supply electrical supplies to the Steelers and Pirates. There is no evidence of a warehouse or any other facility to store such supplies. Owner Leah Drain acknowledged she is purchasing all of the products from Cardello Electric, a non-minority company, but said she was well-qualified.

"I'm an electrical engineer, I do energy audits, I was a plant engineer for five years and know a lot about materials in energy management and how to apply it for energy savings," said Drain, who works at her business while raising a family.

Wary of certifications

Udin said he's suspicious of so-called minority and women brokers who are certified as disadvantaged.

He said in many cases, minority and women brokers and suppliers are unnecessary intermediaries who bring little to a construction project except added costs and the illusion that minorities and women are actually getting a significant piece of the action.

"Brokers, I think, are a unique artifact of affirmative action," Udin said. "Brokers have no real place in the way the construction industry operates.

"The city has not made any policy that distinguishes between contractors who serve a commercially useful function versus suppliers who serve a semi-useful function versus brokers who serve almost no function.

"That's obviously a weak program that prevents legitimate women- and minority-owned companies from having a commercially useful participation in the construction industry."

Part of the problem is that the authority itself has no rules to ensure its minority- and woman-owned business goals are legitimately met.

The authority adopted a directive issued by Mayor Murphy in November 1999, which was similar to directives issued by former Mayors Sophie Masloff and Richard Caliguiri, which simply asked that a good-faith effort be made to award 25 percent of the contracts to minority-owed businesses and 10 percent to woman-owned businesses.

It doesn't require that businesses be legitimate or that they do the work themselves.

Political necessity also may tempt the authority to produce impressive numbers for minority and women participation.

Legislators got promises from the Pirates, the Steelers, the city and the Sports & Exhibition Authority that all city and county residents -- especially minorities -- would share in the boom these projects would create. These promises were necessary to win critical support from minority legislators when it came time to vote for funding for the projects.

Minorities received assurances that they would share in this money even though it is illegal for the authority to set quotas requiring that a certain percentage of the stadium and convention center contracts go to minorities and women. The U.S. Supreme Court has ruled that quotas -- first established in the 1960s as an effort to remedy past discrimination -- are almost always illegal unless a jurisdiction can show that it has discriminated in the past, continues to discriminate, and that a narrowly defined affirmative action plan is the only way to remedy the situation.

The authority has done no such study, though the city, at Udin's behest, has paid for a study that will try to determine if such discrimination has gone on in the city.

So the Sports & and Exhibition Authority uses the same tactic used by many other jurisdictions -- asking that primary contractors on the projects make good-faith efforts to subcontract to minority- and woman-owned businesses.

Leeper said that until the city's disparity study is completed, the authority is hamstrung.

"Unfortunately, the mayor's hands are tied in that area. But what we need to do is use incentives to try to attract and assist minority firms to improve themselves to the point that they are effectively able to bid on these projects. It is a very complex problem that needs problems addressed on a number of fronts. We need better mentoring, technical assistance, providing minorities and women with access to capital and more."

But the problems can also be traced to the authority's own actions. It relies on other jurisdictions to certify that minority- and woman-owned businesses seeking contracts under the goals are legitimate. Those jurisdictions include Allegheny County, the Port Authority of Allegheny County, PennDOT and the state Department of General Services.

To help satisfy constitutional concerns, these certifying jurisdictions developed rules that minority and woman-owned firms must be disadvantaged to qualify for preferential treatment. These rules include limits on a company's revenue and a company owner's net worth.

Dancing around rules

Yet the Sports & Exhibition Authority and its prime contractors have found ways around the certification rules.

The authority allows companies to be certified by jurisdictions in other states where guidelines are less restrictive than the certification guidelines of the Pennsylvania jurisdictions it normally recognizes.

"The [Sports & Exhibition Authority's] Oversight Committee had initially intended to require out-of-state firms ... to obtain local certification, but many of these firms exceeded the maximum size standards established by the county," Curry wrote in response to a Post-Gazette question. In other words, these firms would no longer be classified as disadvantaged under rules used by the county and other state jurisdictions whose certifications the authority would normally use.

In July 1999, for example, Allegheny County refused minority business enterprise certification to Western Waterproofing of Livonia Mich., because the $16.6 million in average gross income the company earned over the previous three years exceeded the limit, which is $16 million for disadvantaged primary contractors. Yet the company won contracts for a total of $2.7 on the stadiums after it was certified in Ohio. The authority included those contract figures in its minority- and woman-owned business totals.

In February 1999, Franco Inc., owned by Rebecca Snyder, daughter of Pittsburgh construction magnate Charles "Corky" Cost, was decertified as a general masonry contractor because it reported doing $51 million in work the previous three years, exceeding the statutory limit. Its certification was reinstated in March on appeal. A county spokesman said the initial numbers were estimated gross sales. Franco was reinstated -- and received contracts totaling $21 million on the stadium jobs -- when it provided federal tax returns showing the firm's revenues dipped to slightly below $16 million a year.

In calculating contracts awarded to disadvantaged businesses, the county tracks the work that a woman- or minority-owned business actually performs. If a supplier wins a contract that will transfer most of the job to a white-owned company, no more than 60 percent of the total -- depending on whether the supplier stocks the material and delivers it -- would count toward minority and woman-owned business goals. On brokered deals, only the percentage earned by the minority or women business --usually between 1 percent and 5 percent -- is counted.

But the Sports & Exhibition Authority ignores these rules and counts all contracts given to minorities and women at 100 percent, no matter who performs the work.

Minority and woman-owned businesses receive certifications based on their specialties. A steel fabrication company or a painting contractor, for instance, would have to prove that it had an ongoing business in a particular specialty that included warehousing, employees with particular expertise, trucks and other equipment and materials needed by a legitimate businesses.

But the Sports & Exhibition Authority allows a business that receives a certification in one specialty to bid on and receive a contract in another.

CAPCO Contracting Inc., for example, is a minority-owned business certified by Allegheny County as a "construction contractor" that can do painting, drywall installation and flooring. It has almost $2 million in painting work on the two stadium projects. But despite the fact that it is not certified by Allegheny County to handle steel, it is scheduled to provide almost $9 million in steel for the Steelers stadium and PNC Park.



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