The dirty little secrets of "minority" contracting

April 7, 1995

Valley Times, Pleasanton, Calif.

Maybe it was the warm glow of the campfire, or the free-flowing wine, but it was on a weekend camping trip that I found out how California's minority contracting program really works.

``Larry'' is a broker specializing in supplies for commercial cooking and cleaning -- paper cups for school districts, toilet paper for prisons, that sort of thing. He used to sell directly to the state of California, but no longer.

First, he's not willing to tell the state how much he is paying for the stuff he sells, a requirement instituted as a ``cost-saving'' measure. Finding warehouses full of good stuff cheap is his special talent, and he doesn't want his competitors knowing just how cheap.

Second, he kept running into minority preferences, where he could lose a contract even though he was the lowest bidder.

So now, he does all his business with the state indirectly.

He could sell toilet paper for $32 a case, Larry said, but he'd have to tell the state what it cost him. So instead, he sells it to a ``minority business enterprise'' for $35. The MBE, which pretty much consists of one black guy with a telephone and a computer, fills out all the paperwork and charges the state $37 a case.

Everybody is happy, right? -- especially the legislators who make it all possible and go home at night brimming with self-satisfaction over their contribution to social justice.

Not any more. It has suddenly become fashionable to question not only the good sense of the sort of race- and gender-based preferences that lead to padded toilet-paper prices but their intrinsic justice.

Last month, the California Senate Office of Research released a report, ``The Status of Affirmative Action in California,'' which covers the three principal areas of hiring, contracting and education (stock number 7785-S, at $7.25 a copy plus 7.75 percent state sales tax, from Senate Publications, 1020 N Street, Room B-53, Sacramento CA 95814, 916-327-2155).

It includes the texts of the dismayingly large number of California laws that seek to achieve equality of results at the expense of equality of opportunity, opinions by the state Legislative Counsel and the Attorney General that some of the most important of these laws are unconstitutional, and lots of statistics about California demographics.

In contracting, the report says, state law requires public agencies ``that contract for goods and services to set goals for providing at least 15 percent of their contracts to minority-owned business enterprises (MBE's), at least 5 percent to women-owned business enterprises (WBE's), and at least 3 percent to disabled-veteran-owned business enterprises (DVBE's).

Pause for a moment to note that even if you believe in this dubious process, the numbers don't make any sense. California, like the rest of the human race, is about half female; it's 42 percent minority; and I don't know how many disabled veterans there are but I'd be surprised if it's as high as 3 percent. Where did 15/5/3 come from, except out of thin air?

But a more difficult problem is that in the narrow sense the law requires, most businesses of any size aren't ``owned'' by anyone. The definition requires that ``management and daily operations are controlled by one or more minorities/women who own the business'' and ownership is defined as 51 percent ownership ``by one or more minorities/women.''

Take a small firm started by a minority or female entrepreneur public -- the ultimate success story -- and it no longer qualifies!

Neither does his company, says Ward Connerly in the forthcoming issue of Policy Review. Connerly, who is black, is a Sacramento businessman and a member of the Board of Regents of the University of California.

``I own 50 percent of the stock issued by my company,'' Connerly writes. ``My wife owns the other 50 percent. Technically, neither of us `controls' the business, and we qualify for neither MBE nor WBE preferences.''

Sure they could change that, but why should they have to?

When a general contractor bids on a state contract, many of the big-ticket parts of the deal are subcontracted to large, publicly held corporations where ownership and management are separate. Those can't qualify.

To meet the state's affirmative-action requirements, then, the general contractor has to concentrate all of its MBE/WBE efforts in just those few parts of the job that can be done by small firms (whose owners are identifiable by race and gender).

That happens in construction surveying, says Lynn Bowers, principal engineer of Lynn Bowers & Associates of Pleasanton.

``We're frequently told, usually by the general contractors, not even to bother to bid,'' he says. ``They've already decided they're going to meet their quotas in our area, and maybe 25 percent of the time, we're shut out of these jobs, even though we're economically competitive.''

The authors of the state Senate report defend California's minority contracting laws by saying it is neither a set-aside that ``delivers a percentage of all procurement dollars directly'' to certain kinds of enterprises, ``nor a preference program that gives an advantage to bidders who either are or use'' those firms.

The state has to do that, because the Supreme Court, in a 1989 decision, declared that such overt actions were unconstitutional. But its indirect attempts to accomplish the same goal by making contractors do the dirty work are just as objectionable.

The Supreme Court requires that affirmative action programs be based on evidence of past discrimination; that they be narrowly tailored to remedy that discrimination precisely; and that they not be immortal. They may not be based on the desirability of achieving racial balance or proportional representation.

Despite the authors' obvious approval of the state's programs, California is clearly seeking to wiggle around the Constitution.

It's time for that to stop.