Contracting, banking and other practices hamper growth of MBEs

Although Minority-owned Business Enterprise (MBE) initiatives have helped many companies grow, industry leaders warn that MBEs still face a host of significant business obstacles.

“If the [MBE] rules on the books were enforced the way they were written, minority contractors would probably have all the work they could ever do,” said Dan Moncrief, III, President of the National Association of Minority Contractors.

The level of monitoring and compliance with MBE contracting goals, however, varies widely throughout the industry.

“I can give you multiple examples of contractors who used my number on bid day, who said in interviews with the owner and the jurisdiction that IronShore would be their contractor. But then I never saw a dime of the project. They cheated the system,” said Greg Malcolm, Founder and President of IronShore Contracting.

In other instances, contracting practices have effectively eliminated MBEs from competition.

“CM at Risk and design/build have become more common in the last 10 years. But typically, minority contractors do not have the resources to respond to those RFPs when they are solicited under those delivery models,” Moncrief said.

Accessing resources is another systemic challenge for MBEs. Startup or first-generation MBEs typically lack the funding, the business history and the connections with bankers and other professionals to raise sufficient capital and other crucial resources, Moncrief said.

In a recent interview with the Baltimore Business Journal, Baltimore County Chamber of Commerce CEO Brent Howard said access to capital is the biggest obstacle facing small, minority-owned businesses. “We need to see more capital investment for small and emerging businesses, especially for businesses of color because they don’t necessarily have those familial relationships to be able to gather together seed money…and they might not have the banking relationships within the financial arena to be able to access certain loan terms that are going to be beneficial to their businesses.”

The lack of longstanding business connections and access to resources hampers MBEs in other ways.

“I was talking with one gentleman and he asked why our price was higher than his. I said it’s because you get to buy direct from the supplier and we don’t, so our price is made higher by the [reseller’s] markup,” said Terae Kearney, Project Manager at IronShore.

Several initiatives could help alleviate those challenges. Strategic partnering between larger, established companies and MBEs could help minority contractors attain “a certain level of insurance, a certain level of bonding, a certain level of buying power that comes through legacy,” Malcolm said.

GCs could adjust contracting practices to “unbundle some parts of projects and put them in sheltered markets where small, minority businesses could compete among themselves rather than competing against the world,” said Moncrief, the Chairman and CEO of McDaniels Construction Co. in Ohio. He added, “But for minority carveouts, I would have experienced a lot harder time in business than I did. I would bid on those carveout pieces and compete against like competitors and that was very successful for me.”

Better tracking of compliance with MBE programs and broader communication about contracting opportunities would also help, said Sheila Dixon, Marketing Director for the Maryland Minority Contractors Association.

“Opportunities for minority contractors are scarce,” she said. “One of the reasons this organization was formed was the difficulties that MBEs, especially African American-owned companies, were having getting access to contracting opportunities and becoming part of that network.”

While high project demands and tight profit margins can compel GCs to restrict their subcontracts to long-standing partners, Dixon urged GCs to create opportunities for small MBEs to join their project teams in a limited capacity and demonstrate their capabilities.