New construction, same old barriers
Last year, Minnesota saw more than 200 construction projects on road and bridges alone and that number is set to increase in 2022, as Gov. Tim Walz proposed a $2.7 billion package of state-funded construction projects to the 2022 legislative session.
The proposal would be funded mostly by bonding, but also includes $276 million in general funding, made easier by the state’s projected budget surplus of $7.7 billion. The record “local jobs and projects” proposal will impact the state’s construction industry in a significant way.
Part of that proposal includes nearly $500 million for higher education projects and $400 million for the Minnesota Department of Transportation alone.
The public construction bills are likely to be hotly contested due to the divided legislature. Bonding bills require a three-fifths supermajority vote in both the House and Senate.
Once a bonding bill is passed, large prime contractors will be able to send in Requests for Proposals or RFPs and bid their prices on these public projects.
As part of state and federal law, these prime contractors are required to allocate some of the construction work and funding to women and minority contractors. This record budget geared towards public construction gives Disenfranchised Business Enterprises or DBEs an opportunity to thrive in the near future if they’re brought on board for these projects.
However, the experience of some minority contractors has made some question how they might fare in accessing these public projects and whether or not there will be an equitable distribution of state funding despite the laws on the books.
Marvin Smith, president, and CEO of Bogard Construction has been operating his commercial demolition and construction business going on 14 years. Smith is also the president of the Association of Minority Contractors’ Upper Midwest Chapter (AMC), which is focused on addressing the needs and concerns of minority contractors.
Smith stated that the organization aims to provide newcomers to the industry with the reliable information they need to succeed. “We like to put an emphasis on helping new startups gain a foothold in the industry and then making sure that we provide them enough support, enough guidance, and information to thwart any costly mistakes on their part and to ensure that over time they become successful and can eventually grow,” he said.
The AMC represents over 30 contractors, many of whom have over 10 years of experience in various construction fields such as landscaping, flooring, roofing, and electrical work. The association allows contractors to network and form partnerships so that when prime contractors are looking to subcontract opportunities to other minority contractors, they’re likely to refer to one another.
Given his experience, Smith feels strongly that construction work is a promising industry for many Black Minnesotans who hope to build generational wealth and go into business for themselves. He also sees some barriers to entry and sustaining business in the industry.
Frustrations with prime contractors in bidding for jobs
According to Smith, many of the opportunities afforded to minority contractors rely solely on public projects where prime contractors are required to hire on DBEs, but those prime contractors don’t regularly partner with minority contractors on private projects. “The White larger contractors don’t hire minority contractors unless there are goals on the project. In other words, it’s not an open market for us,” he said.
The Minneapolis Fed alluded to this in their report last year on the barriers business owners of colors face in various industries. The report stated that, “White construction contractors who know each other socially through a club or sports league might agree to work together to beat bids submitted by other contractors.”
Smith sees that this approach to only hire minority contractors on as DBEs is inadvertently driving down prices as subcontractors are forced to lower their prices to outbid each other. He contends that this stifles a small contractor’s ability to grow. “That scenario creates a race to the bottom,” he said. “Because the slice of the pie is so small for us, we’re bidding from a place of desperation and survival.”
Brittany Wells is the operations manager for ML Beasley Roofing Inc, a Minneapolis-based company founded by Maurice Beasley. Part of her job is to prepare the documents to bid on projects when prime contractors reach out to her company to come on board.
Wells expressed frustration in dealing with some prime contractors who she says only reach out to meet their good faith requirements. “There’ve been some general contractors who have been awesome. Then there are other general contractors that just want the bid because I guess if they get a bid from a minority business that counts as meeting their goals but they will continue to use their preferred contractors,” she said.
Minority contractors are expected to send in detailed proposals for their scope of the project with blueprints and dozens of pages of paperwork. After putting in dozens of hours and preparing this material for primes, minority contractors can still be denied the opportunity to work on public projects and the job may end up going to a subcontractor that isn’t a DBE.
“You’re not going with our company and it’s very time-consuming and you’re not even giving me a reason so that I can move forward and be more competitive in whatever area that was lacking,” she stated.
Keia Isaacson, owner of Lakeside Floor Coverings and former president of the Association of Women Contractors, shared Wells’ discouragement in the bidding process with prime contractors. She recalled a time when she put together a 20-page proposal for a subcontracting job with a prime for a $5000 bid. “By the time I put in my administrative hours, there’s no profit,” she said.
Isaacson added that breaking down the scope of work from one large prime to several subcontractors could also benefit the industry and help agencies reach their DBE inclusion goals. “I think the best way for them to be able to meet their goals is to break down some of these contracts into smaller contractors. Instead of putting everything on a big general contract, break out some of the smaller parts so the smaller companies can participate,” she said.
While minority contractors are frustrated with the bidding process, they also have a difficult time working to secure their payments from prime contractors who take months to pay them out. “The way it’s set up is the prime or general doesn’t have to pay us till 10 days after they get the check,” Smith explained. His experience working directly with local and state government agencies has resulted in his payment being within 30 days whereas a prime contractor could take upwards of 90 days to pay.
Isaacson also shared in that experience where she has had to keep after primes for her payment. “You’ve had to pay your manufacturers, your distributors, you’ve paid your employees, and now you’re sitting there playing bank for the small profit there is in commercial construction,” she said.
A City of Minneapolis dashboard showcases the payout for workers of color and minority contractors on the city’s publicly funded projects. In 2021, minority contractors received just 7% of the city’s $136 million dollar payout on construction funding giving them a little over $9 million. This percentage is likely due to a number of factors, including a low number of minority contractors in the industry, prime contractors being unable to hire minority contractors in time, or prime contractors believing the bids were too high and hiring other contractors for the job.
As the bonding bills work through the state legislature, many construction company owners await word from their network of contractors on new opportunities with hopes of meeting local, state, and federal inclusion goals.