Grosso’s opening remarks from hearing on amendments to the Small Business Enterprise and Certified Business Expenditure Acts

Councilmember David Grosso’s opening remarks from the Committee on Business and Consumer Affairs hearing on three bills that will amend the Small Business Enterprise and Certified Business Expenditure Acts:

Thank you, Chairman Orange for holding this hearing.

Today, we are here to discuss bills that would amend the Small Business Enterprise (SBE) and Certified Business Expenditure Acts.  I do not believe that the current set-up is working well for our city businesses or agencies.  I am not suggesting we disband the SBE program, I am suggesting that we reform how it is being implemented.  I believe we can address helping small businesses in more creative ways that will help them thrive as opposed to forcing agency’s to do business with them.

Last December when the Committee held a roundtable on these issues we analyzed the Auditor’s September 2013 report that provided a substantial amount of basic data regarding each agency’s budget, the required SBE amount to be spent, and how much the agency actually did spend during the first three quarters of fiscal year 2013.  We are able to capture which agencies are in compliance and which ones are not.  And as I stated last year, from what I can tell, there is a pattern of inconsistency from agency to agency, quarter to quarter, year to year.

I believe our system is too inflexible.  Rather than spurring growth, it pushes businesses out of the District because they do not want to deal with the maze of requirements for certification.  I do not believe that we can demand that each agency meet an often intangible goal without looking at a more holistic approach that supports small businesses without over burdening government agencies. 

Creating more SBEs by expanding the scope of RFP requirements, broadening the exceptions in the Code for who qualifies as a CBE or SBE, or making blanket percentage requirements on agencies is not the answer.  

As we know, the SBE program is not unique to D.C.  Across the country, hundreds of cities and counties have small business enterprise programs in place.  Each program is different, but common themes of success include established city-wide participation and individual contracting goals. This year, the Small Business Policy Project studied the concerns of over 200 stakeholders.   In February, the project published their findings in a report that includes over 50 recommendations for improving the environment for small businesses in the District of Columbia.  Many of their recommendations are relatively simple and can be done soon.  For example we can do three things:

First we need to improve the environment for small businesses who want to operate in the city.  We can expand their resources and technical assistance funding that helps to provide support at each stage in a business’s “lifecycle.”  If there is better technical assistance then we can measure outcomes and track a business’s long term success.

Second, we need to give the small business community a voice and listen to that voice. Let small businesses express their needs and have a platform where they are heard.  For example, a small business advocate or ombudsman would help the business community to advocate for their needs and concerns.  

And lastly, we can work to improve the access to information and communication with small businesses.  If DCRA and DSLBD can streamline their processes and share more data than small businesses can thrive here.  Also, if we allow for the delay in licensing fees or other major hurdles like retail space and other economic hardships that emerging small businesses must face than we are truly helping them survive.

I would like to hear today if DSLBD would be able to implement these bills, if they truly address SBE and CBE compliance, and if there aren’t better ways to assist each agency to meet SBE goals and how they engage with stakeholders to raise participation.

I would like to work together with you, Chairman Orange and the Committee to find ways that government can better assist small businesses so that they can thrive in D.C. and so that SBE’s can be involved in all of our contracts. 

Certified Business Enterprise Program Needs Revamping Overall

By Councilmember David Grosso and Christina Henderson 

Anyone who has ever experienced the contract and procurement process for the District government knows it is not for the faint-of-heart. Governed by an elaborate maze of rules and sometimes the rather subjective interpretation of the rules, procurement requires organization, advanced planning, interpersonal skills, patience, and a healthy dose of persistence.  After only ten months on the job, Councilmember Grosso has probed a dozen of areas where the District’s procurement practice could be improved, but, chief among those would be the Certified Business Enterprise (CBE) program. He is not alone in this critique.

As many of you know, the District requires that all construction and non-construction contracts over $250,000 have at least 35 percent of the total dollar amount be subcontracted to a small business enterprise. When we first learned of this requirement working on procurement issues, we could not believe this was a blanket rule even for non-construction contracts. Sure, an agency can seek a waiver from the Department of Small and Local Business Development (DSLBD) if it cannot reach the 35 percent threshold, but as general practice, the blanket rule applies without regard to the needs of a particular scope of work. The recent dust-up over District’s instant tickets lottery games contract which lapsed on July 20 is a perfect example of how complicated this can be for businesses. When the vendor, Scientific Games International, reported that it was unable to meet the 35 percent requirement because the majority of its costs—printing and delivery of the tickets—could not be subcontracted, it was suggested at a Council hearing in June that the Office of the Chief Financial Officer (the contract administrator in this case) “expand” the scope of work to make it easier for vendors to meet the 35 percent. In other words, there was suggestion that a D.C. contractor create the need for more work, that’s not needed, thereby costing taxpayers more. With OCFO choosing to rebid the contract, it seems they went that route. This is the very thing that frustrates people about government—waste. (Update: Since publishing this blog, we have learned that OCFO rebid the lottery contract using the original scope of work. Only one vendor has bid; it was not Scientific Games International.)

The instant ticket contract debacle peaked our interest about the District’s CBE program. Perhaps, we thought, the 35 percent requirement is tied to some sort of evidence-based look at the disparity in utilizing local small businesses for District contracts and best-practices around the country. However, the Council’s recent attempt to raise the subcontracting requirement to 50 percent for construction contracts, made it evident that policy making for the CBE program has been far more arbitrary than anyone would admit.

Across the country, hundreds of cities and counties have small business enterprise programs in place. We examined the laws/ordinances, policies and practices that govern 15 localities to see if there are any lessons to be learned and shared. There were differences among each of the cities. For example, some cities business enterprise programs are only for minority or women-owned businesses. Others only establish subcontractor participation requirements for construction contracts, and not professional services or purchasing. However, there are two major practices that would be helpful for the District to adopt.

Citywide Goals. All 15 cities and counties we examined have two different types of participation goals when it comes to their business enterprise programs – citywide goals and contract goals. Citywide goals are generally set annually by the local governing body to determine what percentage of contracting dollars they would like to see awarded to local businesses that fiscal year. In some cities, the participation goals differ based on type of contracts, as well as classification of the business. They are not summarily adopted as goals for individual procurements. More importantly, the goals are informed by the current business climate in the city. Philadelphia’s Code, for example, requires that their annual participation goals be based in part on: (1) the present availability of qualified disadvantaged business enterprises (DBE’s); (2) the utilization of qualified DBEs in past contracts awarded by the City; (3) a forecast of eligible contracts to be awarded within the fiscal year; and (4) an updated Disparity Analysis of businesses in the Philadelphia area. From New York City to Milwaukee, WI to Orlando, FL, they all have similar methods for setting their participation goals. As with any strategic planning effort, this allows for regular evaluation of the progress of the business enterprise program using accumulated data to determine whether specific program provisions require modification, expansion, or curtailment.

Contract Goals. The District’s blanket 35 percent subcontracting requirement for contracts over $250,000 stood out as an anomaly that appears to lack substance. Fourteen of the fifteen cities we studied set their goals contract-by-contract. In Denver, CO, the City enlists the help of 3 committees –Construction Goals Committee, Heavy Highway Goals Committee, and Professional Services Goals Committee – to help determine the various business enterprise participation goals for projects. So far this year, there have been goal determinations set as high as 40 percent.

In Houston, TX, the Office of Business Opportunity reviews scopes of work to determine specific participation goals based on a calculation that includes among other things available qualified businesses and past levels of utilization for similar contracts. In January, the New York City Council amended its business enterprise law to require that each agency set goals for individual procurements based in part by “the citywide goals and the agency’s annual utilization plan, the size and nature of  the procurement, and the availability of MBEs, WBEs and EBEs with the capacity to perform the specific types and scale of work involved in its procurements.” This type of approach seems to have worked well for these cities. Not only do the businesses appreciate that the goals are not arbitrary and therefore achievable, it requires the city to have a strong understanding of what’s happening in its small business community.

Tomorrow, the Committee on Business, Consumer, and Regulatory Affairs will hold a public hearing on two bills related to the District’s CBE program, the Certified Business Enterprise Program Enhanced Reform Amendment Act of 2013 (B20-422) and the Small and Certified Business Enterprise Development and Assistance Amendment Act of 2013 (B20-181). Both bills include some necessary enhancements, but without addressing the way in which we establish participation goals for our local businesses the program will continue to have problems. See a quick glimpse of how D.C.’s CBE program stacks up against other cities around the country: