The holy quest for equality has pervaded all aspects of American life. In this short interview with Steve, I attempt to flush out how affirmative action quotas are hurting American businesses. Steve is an engineer employed by a multimillion dollar contracting company that operates in the New York Metropolitan Area.
Alexander: Thank you for agreeing to this interview today, Steve.
Steve: I’m glad to help out. Where should we start?
Alexander: How about with motivation. Do companies like yours adhere to affirmative action quotas because they are legally required to do so? Or are there financial incentives for compliance with government quota guidelines?
Steve: When projects receive government funding, it is always a legal requirement. However, most of the larger projects we bid now without government funding also require it. In my experience, meeting quotas has pretty much become standard contracting when working on large scale projects.
Alexander: And to be clear, what kind of projects does your company bid?
Steve: Roads. Bridges. Airport work. Large buildings.
Alexander: So how exactly does it work, Steve? What are the mandated quotas and how do you fulfill them? Let’s stick with government contracts for simplicity.
Steve: There are three types of diversity certified businesses. MBE is for Minority Business Enterprise. WBE is for Women Business Enterprise. DBE is for Disadvantaged Business Enterprise. When companies like mine bid on a project, the government offers up the contract for bidding and sets quotas for a certain percentage of these certified companies.
Alexander: Can you break it down for me in a hypothetical?
Steve: Let’s say the government is building a bridge and the contract has a quota set up for 10% MBE and 10% WBE. If my company bids a $200 million project, then we must subcontract out part of the job or use suppliers that are total valued at $20 million for MBE companies and $20 million for WBE companies.
Alexander: And how do you find these companies?
Steve: The state maintains a list of these companies on their website so you know whom to call for what specialty.
Alexander: And what happens if all of these companies quote a higher price than competitors that are not MBE, WBE, or DBE?
Steve: If you need one or more of these companies to meet the affirmative action quotas, then you still have to use them.
Alexander: What if you were not pleased with the performance of any of these companies in the past?
Steve: It doesn’t matter. You have to use them. Even if they did a low-quality job or failed to fulfill orders on time.
Alexander: Is this a real concern? Isn’t there enough of these companies competing with one another to ensure that you can find one that does good work at a relatively fair market price?
Steve: For some subcontractors, this is indeed the case. But there are certain trades and subcontractors where competition does not exist.
Alexander: Can you provide our readers with another hypothetical?
Steve: Let’s say your company is building a government office complex, but needs to subcontract the painting. You shop around and get three painting quotes. The first subcontractor will do the work for the lowest price. They are a proficient company that you have worked with before, but they are not an MBE company and you still need to meet your MBE quota. The second subcontractor is an MBE company, but they offer a slightly higher price than the first company and they have a questionable reputation. They walked off the job with you before and they have a history of not completing projects for other general contractors. The third subcontractor is a competent MBE company, but their offer is $10 million higher than the first company and $5 million higher than the second company. Since it would be a risky move to go with the second company and the first company is not an MBE, you end up subcontracting the most expensive company.
Alexander: But in a situation like this, wouldn’t the optimal solution be to meet your MBE quota in some other area? If the government contract does not explicitly say what jobs or supplies must be subcontracted to MBE companies, don’t you have the flexibility to pick an MBE company to perform any number of functions?
Steve: The problem is that there are really just a few types of work that MBE companies perform. I’m working on a job right now that requires concrete repairs, mechanical work, and painting. We self-perform the concrete work, but we cannot self-perform the mechanical or painting work. There are no mechanical MBE subcontractors which means in order to meet our MBE quota, we have no choice but to use a higher priced MBE painting company.
Alexander. So how does the government actually facilitate this process? How are quotas enforced?
Steve: The government maintains a huge bureaucracy called the Equal Opportunity Employment Office (EEO) which oversees and enforces the quotas. There is a ton of paperwork involved, especially in the bidding process, which results in a greater cost burden on companies like mine.
Alexander: So, if I’m hearing you correctly, when you tally up the costs, the government or whatever business entity is funding the project, is essentially paying you to complete the work for an amount that is potentially not the lowest price it could be because of these requirements?
Steve: Exactly. Clients are overpaying for construction projects for the sake of equality. And when government funding is involved, it is the American taxpayer who is forced to pay extra for the benefits of diversity instead of acquiring the lowest qualified bidder.
Alexander: And I suspect there are other economic costs linked with the increased cost of service?
Steve: Indeed. When projects cost more, there is less work to go around which means fewer jobs for us general contractors to bid and less work available for our workforce. In other words, affirmative action quotas for diversity businesses ultimately results in fewer employment opportunities for the rest of America.
Alexander: So what happens if a company like yours is awarded a contract, but fails to fulfill its quota obligations? How are you punished?
Steve: Payment is withheld…but failure to fulfill quota obligations does not happen very often anymore because the federal government has really cracked down with increased prosecution. Companies that want to avoid lawsuits maintain diversity compliance officers for internal policing. General contractors are also very concerned about their EEO record. A reputation for failing to meet affirmative action quotas can preclude a company from being awarded future contracts. On the other hand, maintaining a good reputation can have the opposite effect.
Alexander: Is there anything else you want to add to this discussion?
Steve: Affirmative action goes much deeper than what we have discussed thus far. In addition to these requirements, we must also maintain quotas in each trade. Actually, all the subcontractors on the job have to do this too.
Alexander: Please clarify what this means.
Steve: Trades can include professions like ironworkers, laborers, carpenters, painters, lathers, masons, operators, and teamsters. Prior to beginning work on a job, we must prepare a utilization report that shows our anticipated manpower for each trade over the course of the project and how many minority workers and women workers we plan to use each day. These reports are audited and checked monthly. If we are found noncompliant with the quotas, then the government or contracting entity withholds our payment.
Alexander: Could this ever result in you being forced to hire less productive workers?
Steve: Without a doubt. For starters, women simply cannot dig, lift, or haul as much as men can, but we are still forced to hire them in all trades to meet the quotas. Moreover, it is always safer for companies to hire experienced labor workers. When employment choices have to be made based on gender or race above experience, then efficiency goes down and safety standards can be compromised.
Alexander: Steve, this has been a fascinating discussion. Thank you for your time today.
Steve: Not a problem. And this is just the tip of the iceberg. You can go to the NYSDOT website and see that the New York state government will even reimburse bond fees and premiums to companies that are certified as MBE, WBE, or DBE. Does that sound like fair competition to you?
Alexander: No…it certainly does not.