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90-222 o R r�t N A � � - 1 � �ouncil File � qa a�� Green Sheet ,� /� RESOLUTION i �� ITY OF SAINT PAUL, NESOTA ( �,I J ,� a �_� P sented By - � Referred To ��-; ' � .� Committee: Date vl -/�-- �c� WHEREAS, the City of Saint Paul has adopted Chapter 81 of the Admznistrative Code authorizing that a portion of City purchases be made from certain kinds of ven• dors; and � � WHEREAS, the IInited States Supreme Court has issued several decisions that im- pact on Chapter 81; nd WHEREAS, the Ma or and City Council have directed staff of the Purchasing Divi- sion to study the Co rt ' s decisions and recommend changes to Chapter 81; and 6VHEREAS , Purchajsing Division Staff have completed such study and have prepared written materials fo�r consideration by the Mayor and City Council; NOW, THEREFORE, BE IT RESOLVED that the Council of the City of Saint Paul does hereby receive documients collectively referred to as "Purchasing Policy Rer�ort #1 ! An Evaluation of Sai�t Paul ' s Set Aside Program" and make them an official part of the record of the Council 's deliberations on Chapter 81. . Y� Navs Absent Requested by Department of: mon on'' Z Finance & Management Services acca e e man v , a e � B . \ z son rt'C- Y' T P Y lj: Ap� 2 4 �g9� Form A ved by ity Attorney Ado ted b Counci Date < Adoption Cert fied by Council Secretary gy: �'�• 3� r d By' Approved by Mayor for Su mission to Approved by Mayor:! Date - APR 2 5 1990 coun�i� By. rd�� By: �� 1�lt�!ISHED M AY - 90 , `:, � ��o�a� DEPARTMENT NdL . ` DATE INITIATED Firiance & Mana e ent service 1/31/90 GREEN SHEET No. �s�� c�r�cr r��a a� �o��at�errt�a�cron � �/9�rv oounar. Jackie Hicks #29 -7518 � ��,TV�rroANev 1/31/90 []c�rrc�c MUBT BE ON COUNpI A(iENUl1 BV(DA lIOUTUKi BUDOET DIFiECTOR �FIN.i MOT.SERVICEB DIR. �MAVqi(OR A8&STAM] � ❑ TOTAL M�SIONATUi�P 1 (CLIP ALL LOCATIONS FOR SIONATUR� �ctaH a�auesteo: Acce�t the attac ed re�ort _from sta�f and. incornorate as part of permanent record of channe adonted in Chapter 3? o� the r�dministrative Code. :�oa►a+W« ' (Rl OOUNp1.OOMI�ITTEE/RESEARd1 REPORT _PLANIqNO OOAAM18810N L BERVICE COMMISSION ANALYST PFIONE N0. _CIB OOIAIAIITF.E _BTAFF C�NTB: _OIBTFtlCr COUAT — BUPPORTB YYIMCM COUI�ICIL OBJECTIVE MMTIAlMKK!PROBL81.188UE� (MRa�N�h�t�VlflMn.WFiM��MIIM: Staff k�as direct d by the Mayor to evaluate the Set-Aside Program in light of the Croson d ision. NOTE: This is a campanion to the revisions in Chapter 81. �ov�u�rr�s��ovEC: o�owwr�s��ov�: �cErvEo . �U619A0 CITY CLERK DISADVMITAtaE8 IF NOT IIPPROVE7 �;ounc�i Hesearch �;enter FE B 011990 TOTAI AMOINrT OF i COiTA�YENUE NJDOETEO(ql1CLE OqE) VE= NO FUNDII�IQ a0t!lICE ACTRIITY NtlM!!ER Flt�l1P1(�I1L INFORMAi�I:(EXPLMI�ry , , � , �. ,��. . . - - � _ � : : ; ' NOTE: G�OMPLETE DIRECTIONS AFiE IN(X.UDED IN THE GREEN 8HEET INSTRUCTIONAL MANUAL AVAIF.ABLE IN THE PURCHA3IN�OFFICE(PHONE NO.'29�4215). ROUTIN(i ORDER: BNow ere preferred routfn�s for the five m�t irequeM types of documeMs: OONTRAC'TS (aesumes autha'fzed OOUNGL RESOLUTION (M�snd, Bdgta./ _ budget exfsta) Accept.Grants) r 1. Outsfds Apency 1. Depertment Direator 2. I�itietin�Dspertment 2. Budgst Dtrector 3. Gty Attorney 3. �ity AttomeY 4. Mayor 4. MayorUs�tant 5. Flnerx:e d AAgmt Svcs. Director 5. qty Oounal 6. Finance/►coouMing 6. Chief I►ccourKant, Ftn 8 Mgmt Svcs. ADMINISTRATI�ORDER (Budpet COUNqL RE30LUTION (dl oMsro) Flsvision) and ORDINANCE 1. /lctivity Mane�per 1. IMddirp Dspertment Di►ec�or 2. Dsp�rtmeM AccouMant 2• ��MY 4. Bud�DireCtor�« 4• dty f�OU�t 5. Cny Gerk 6. Chief AccouMaM. Fin&AA�mt Svca. ADMINIS'TRATIVE ORDER3 (all others) 1. InitiaRing DepertmeM 2. City/►ttorns�► 3. MayoNAs�arn 4. �ty Clerlt TOTAL NUMBER OF SKiNATURE PAQES Indicate ths#�of psges on which signatures aro requfred and�rcli each of tf�se� • ACTION REQUE3TED Deecribs whet th�project/requeet seeks to axomplish in eithK chroralopi- cal order or ordsr of impo�.vrhichs�rsr fs most approp�fate for ths iast�. Do nart w�ite ca�lete ssMenc�s. 8egin each ftem in�rour Ibt with a verb. RECOMMENDATION8 . Complste if the isws fn qusstion INS bssn.pressMsd bafore arry body.PuWic � or private. SUPPORTS WHICH COUNdI OBJECTIVE? I�e which Cou�dl obJectiye(s)Y��P�reQ��PP�bY�� the keY wo►d(s)(Fi0U31NO. RECREATION. NEIGIHBORHOODS, EOONOMIC DEVELOPMENT� BUD(iET.SEVNER�PARATION).(SEE COMPLETE LIST IN INSTRUCTIOI�AL MANUAI.) COUNCII.COMMITTEE/RESEARqi REPORT-OPTIONAL AS REQUESTED BY COUNCIL INITIATiN(i PROBLEM, 133UE,OPPORTUNITY Explain the spuaq9�or oorxHtiona that creatad a nesd for your projec:t o►requeet. ADVANTAQES IF APPROVED Indicate whstMr thb ie simpiy an annuat bud�t proceduro requirod by law/ clwt�r or whsther th�rs�n�scMfc wA fn which the Gty of Safnt Paul and its citizena will bsnslft irom this p►o�t/actbn. DISADVANTA�3E3 IF APPROVED What nepative sifects or major char�s to existinp or past proceases might this proj�ct/roquest produce if it is passed(e.g..t►aHic dslays� noiss. _ tax incresess or e�sments)?To Whom?When?For how kxp? DISADVANTACiES IF NOT APPROVED . WhW wi0 bs ths nepative conssqusnces if the promiaed action ia not approved4 MaWlity to deliver senrice?Continusd high trafNc, ndse, aoddsnt rate?Loe�of rever►us't � FlNANGAL IMPACT , _ Although you muat taibr the information you provids here to the issue you aro addreaing, in�snsral you mwt answsr two questbns: How much is it 9oiny to cost?Who is goinp to pa�/t . �,�.qo a�2 . ; . ,t � � �,�gQa a�� o . CITY OF SAINT PAUL ' - ��H �� 3` � OFFICE OF THE CITY COUNCIL CITY HALL-7th FLOOR-SAINT PAUL,MINNESOTA 55102 612-298-5506 TOM DIMOND COUNCILMEMBER Members: Tom Dimond, Chair Dave Thune, Vice-Chair Paula Maccabee nate: March 28, 1990 RECEiVED COMMITTEE I PORT �� HOUSING AN ECONOMIC DEVELOPMENT COMMITTEE CI?Y CLERK I 1. Appro�ral of the Minutes of the March 14, 1990, Housing and Economic Devel�Opment Committee meeting. COMMITTEE REC I�4�SENDED APPROVAL, 3-0 2. Resol tion 90-230 -- An ordinance amending Chapter 81 of St. Paul Admi istrative Code pertaining to purchasing from Set Aside businesses (Laid Over in Committee 3-14-90) . COMMITTEE RE(�OMMENDED APPROVAL WITH AMENDMENTS 3-0 3. Reso ution 90-222 -- Receiving documents collectively referred to as "Pur asing Policy Report ��1: An Evaluation of Saint Paul' s Set Aside Prog am" and making them an official part of the record of Council deli erations on Chapter 81 (Laid Over in Committee 3-14-90) . COMMITTEE RE OMMENDED APPROVAL, 3-0 4. Arun el Street Vacation. COMMITTEE RE OMMENDED THAT A RESOLUTION BE DRAFTED TO CONTINUE TEMPORARY VACATION AND HAVE THIS IS UE BROUGHT BEFORE THE ENTIRE COUNCIL AFTER A ONE-YEAR. PERIOD, APPROVED, 3-0 , I 5. Low �ncome Tax Credit Qualified Allocation Plan for Procedural Manual. COMMITTEE RE�OMMENDED TWO WEEK LAYOVER, TO THE APRIL 11, 1990, HOUSING AND ECONOMIC DEVELOPMENT OMMITTEE MEETING, 3-0 6. Guid�lines for Vacant Building Program. COMMITTEE RE�OMMENDED TWO WEEK LAYOVER, TO THE APRIL 11, 1990, HOUSING AND ECONOMIC DEVELOPMENT �OMMITTEE MEETING, 3-0 Chair, Housing and Redevelopment Authority, Committees: Public Works; Housing and Economic Development; Finance. , ��s 100% Recycleable COMMITTEE REPORT HOUSING AND ECONOMIC DEVELOPMENT MARCH 28, 1990 PAGE TWO 7. North End Partnership URAP -- District 6. COMMITTEE RECOI�SENDED APPROVAL TO HRA BOARD, 3-0 . 8. Neighborhood TIF, Districts 2, 7, 8 and 15. COMMITTEE RECOMMENDED APPROVAL TO THE HRA BOARD, 3-0 9. Resolution 90-376 -- Establishing a legislative advisory committee to be known as the Task Force on Neighborhood Development Capacity Building. COMMITTEE RECOZQiENDED APPROVAL WITH AMENDMENTS, 3-0 2 �� , __ �::!'�' -% � . Purcha�ing Policy Report # 1: An Evaluation of Saint Paul's Set Asid Program i I i Prepared By: Linda J. Camp Purchasing Systems Manager Priscilla Wyeth Management Assistant Jackie Hicks Business Assistance Program Supervisor Michelle Horn Business Assistance Specialist December, 1989 Saint Paul/Ra�nsey County Joint Purchasing Office, City of Saint Paul Room 233 Cit� Hall/Courthouse, Saint Paul, MN 55102 (612) 298-4225 _ _=--- _ _. _ .,_ ... ^ /�rJ - �>. -- J� ��.T. ,, CITY OF SAINT PAUL COUNTY OF RAMSEY �• � ; - � a� � -- )OINT PURCHASING OFFICE � �� c� Room 233 City Hall-Courthouse • ,. �... Saint Paul, Minnesota 55102 612-298-4225 RAMSEY COUNTY To: Mayor Scheibel - _. From : Linda J. �amp � - Purchasimg Systems Manager_ . _ __: �Re: Revisions to City's Set Aside Ordinance - : Date: January 12, 1990 In late January of last year, the U.S. Supreme Court handed down a ruling in the case of J.A. Croson v. the City of Richmond, VA that raised quesions about the constitutionality of Saint Paul's - Set Aside ordinance (Chapter 81 of the Saint Paul Administrative Code). After the ruling, based on discussions vv�ith the City Attorney, Mayor Latimer directed the Purchasing Division to do further analysis di the legal issues raised by the ruling, to conduct a complete analysis of the Set Aside Program(also referred to as the Targeted Business Program),and to make recommendations about the City's options for a Set Aside Program in the future. This is to advise you that our work is now completed and to transmit our rePort and recommendations to you for consideration. If these results are acceptable, I would like to place proposed ordinapce amendments on the City Council agenda for review and action. If you feel additional work is necessary, my staff are prepared to move ahead with any requests. The following items are attached for your review: 1) An executive summary of our research findings and recommendations, 2) A summary of the major changes proposed for Chapter 81 of the Administrative Code, 3) A det�iled report on the Set Aside (Targeted Business) Program and recommendations fbr the future, 4) A revised Chapter 81, 5)A reviised Activity Performance Plan for Activity 11254 (Set Aside Program) and Activity 31158 (New Performance Bond Program), 6)An Administrative Order to begin implementing the new Performance Bond Progr�im tl��it is authorized in the current Chapter 81, 7) Othe� information about the new Performance Bond Program 8) A pr�Posed resolution to receive the Set Aside Program re�ort and recommendations so that it will become part of the official record. I look forward to meeting with you on January 23, 1990 to discuss this in more detail. cc: Ed Warn, Acting Director Purchasing for; City of Saint Plaul,Water Utility, Civic Center Authority, Public Housing Agency, Port Authority, County oi Ramsey. , I ' ��r°�°�� • Summary of Recpmmendations for Restructuring the Set Aside Program of the City of Saint Paul (Note:After each recommendation citations appear in italic indicating portions of the policy report that provide furrher information related to the point and relevant sections of the proposed new Chapter 81.) 1. The City should continue to operate a business assistance program to help new and emerging businesses to �ecome viable actors in the public purchasing proce.SS. There is a public purpose to be served in helping certain businesses who have not yet reached their full potential as vendors, particularly those who have been deprived of the opportunity to develop and maintain a competitive position in the economy because of economic conditions or past discrimination. (See pages 17-18 of Policy Report #1. See section 81.02 of the proposed Chapter 81.) 2.Because of the legal environment created by the Croson ruling and other recent court decisions, the program should be structured so that it is race and gender neutraL The program should be targeted at economically disadvantaged vendors, with an overall annual goal set for purchases. There are many race and gender neutral strategies for providing assistance to businesses that have not been fully implemented by the City. These include such things as assustance with meeting State mandated performance bond requirements. However, the City should continue to watch the development of set aside legislation at the Federal level • and keep the option open to amend the Administrative Code to reinstitute specific requirements for using mi#�ority, female, and handicapped owned businesses when a more favorable legal climate exists. (See pages 17, 21 of Policy Report #1. See sections 81.03, 81.05 of the proposed Clzapter 81. See materials related to Performance Bond Program.) 3. The overall'thrust of the program should be to help busines.Ses develop as vendors so they can participate �ully and effectively in the City's procurement process. To avoid dutplication with other existing business programs, the City should focus its efforts on helping businesses to become viable vendors. This means helping them learn about the City purchasing process, kinds of goods and services needed by the City, how to properly submit bids on projects, how to fully comply with City contract requirements. Given this focus, the Purchasing Division should continue to serve as the point of program management and coordination. Because the City needs to balance its interest in helping businesses with the need to make sure that public;services are being properly implemented in a cost effective manner, the Program should not be directed to those businesses in the very early stages of development. Businesses needing fi�ancing or other startup kinds of assistance should receive help through the Small Business Iaevelopment Program operated out of the City's Department of Planning and Economic Development or other similar assistance programs. (See pages 12-16 of Policy Report #1. See section 81.03, 81.07 of the proposed Chapter 81. See • revised wark plan forActivity 11254.) I C� ��-z Z� • Summary of Recommendations, Page 2 4.The Program should be structured to minimize the amount of paperwork required and masimize the direct technical assistance provided to vendors. The 1990 work objectives for the Program should be rewritten to emphasize vendor assistance and to respond to some of the problems identified thnough the Program review proce.ss. The new vendor performance bond program is ready for implementation and some new training and outreach, efforts were initiated in 1989. These should be continued and further expanded as resources permit. Among the kinds of projects that should be initiated in 1990 are e�anded information and recruiting, additional workshops on how to do business with the City, additional round table discussions, continuation of the On-Tar�et newsletter, and the development of a publication giving information on what items the City purchases. The Program should also include more opportunities for vendors to consult with Purchasing staff and receive referrals to sources of a�sistance with particular business problems. (See pages 14-16, 18-21 of Policy Report #1. See revised work program forActivity 11254.) 5. The name ojf the Program should be changed from the Set Aside Program to the Targeted Vendor Dev�elopment Program. Such a nam�change would better reflect the emphasis on helping businesses develop as vendors and reduce$ome of the confusion about the purpose of the program that was identified through the research process. • (See page 22 of Policy Report #1. See section 81.05 (a) of proposed Chapter 81.) 6.The ordinarice should be amended to specifically identify the City's Department of Human Rights as the place to receive and investigate complaints about discrimination on City contracts. Previous versions of the Set Aside ordinance have been silent on this subject. The Department of Human Rights is the most appropriate place to handle such issues because it is staffed by people wha are experienced in handling and investigating discrimination complaints. The Purchasing Division is not currently staffed to perform this function. The Purchasing Division should,hovuever,continue to accumulate data on utilization of minority,female,and handicapped owned businesses in public contracts for future policy making purposes. (See pages 22-23 of Policy Report #1. See section 81.10 of proposed Chapter 81.) 7. The ordinance should be amended to create a "graduation" point from the Program. Such a graduation period will help address the "dependency" issue raised by some individuals during the research process and will assure that City resources are going to support a wide range of vendors rather than just a few. (See page 21 of Policy Report #1. See section 81.07 of proposed Chapter 81.) • I �� v-z�z • Summary of Recommendations, page 3 8. The City sho�ld continue the present Set Aside AdviSOry Committee and evaluate its structure and duties after a year. Until some of the new Program thrusts have been implemented, it is difficult to determine whether the cunent structure and mission are appropriate. The City should therefore look carefully at tllis matter after some of the ideas have been carried out to see whether an advisory committee is needed, and if so, how best to use it. One possibility that has not yet been fully e�lored is to use an advisory committee structure to forge som� new partnerships with other local resources. It might be possible, for example, to dedicate some of the committee seats to specific kinds of expertise or types of organizations-- creating a ki�d of"blue ribbon" panel. T'his might help ensure that the City stays current with development� within the "business assistance" and does not duplicate services. (See pages 22� of Policy Report #1.) i 9. The Purcha�ing Division should strengthen the current process for ongoing evaluation and reporting onl Program activities in its annual work plan. The evaluatiion process should include some method for gathering input from those registered in the Program along with assessments of various activities. An annual report on the Program should be made available to elected officials, Program participants, and the general public. • (See pages 2� of Policy Report #1. See section 81.09 of the proposed Chapter 81.) . I � �o-z� Summary of Key Proposed Changes in Chapter 81 of the Administrative Code • Below are the major changes being recommended for Chapter 81 of the Administrative Code. They are listed in the order that they appear in the proposed ordinance. 1. Section 81.2. 'I'�ere is an expanded statement of purpose and inclusion of findin�s. The new ordina�ce includes a more comprehensive statement of purpose and a statement of findings that cam� out of the Program review process. Such a comprehensive statement has not been included in iany version of the ordinance to date and staff felt it was important to create a clear statement of legislative intent. 2. Section 81.03. e audience for the ro am has been redefined alon with some of the ke criteria used in P o am im lementation. The audience for the Program has been redefined to bring the law into conformance with recent Supreme Court ulings. Efforts will now be focused on economically disadvantaged small businesses. This definition is the same one adopted by the State of Minnesota, to facilitate the development of single certification process among programs. I A definition for "�ligible goods and services" has been included to permit more accurate Program monitoring and e�valuation. In addition, a de�inition for "mature business" has been included to assist staff in monitoring the • progress of businesses in the Program. 3. Section 81.04. The goals for participation have been revised sli h� A specific statement of the overall goal for the program has been included to emphasize the City's interest in helping vendors achieve a level of business maturity. The vendor utilization goal has been changed from 20% to 15% based on past experiences with applicable City purchases and availability of vendors. 4. Section 81.05. �A specific section on Program scope and administration has been included. The name of th� Program has been changed from "Set Aside Program" to Targeted Vendor Development Program in response to some suggestions received by staff during the research process and to more accurately reflect the purpose of the Program. This section also �ncludes an overview of the services to be performed, application process, and the point of administration. The section providing authority for the performance bond program appears as a separate sec�ion in the current ordinance. It has been moved to the "program scope" section because it will be a key part of program operations. 5. Section 81.07. �'here have been some modifications to the eli�ibility requirements. This section provades for a specific graduation period after �ve years to reduce the possibility of participants becaming dependent upon the Program and to assure that many vendors receive assistance. The section also "grandfathers"in existing participants for one year during the Program . changeover process. Section 81.07, coptinued • Other portions of this section shift the certification appeals process from the Program Advisory Committee to th� Director of Finance and Management Services; add non-performance on a City contract as factou to be considered in renewal of certification; and give the Purchasing Division the authority to gather information from vendors on whether they are female,minority,or handicapped owned. Such in#ormation is to be used by the Purchasing Division in complying with federal set aside requirements. 6.Section 81.09. Lan u�aee has been included to create specific �uidelines for Pro�ram monitorine and reportin� The section reqmires the Purchasing Division to evaluate and report on the Program annually and requires that input be solicited from Program participants. It also requires the Purchasing Division to collect information that will assist in determining whether discrimination in City contracts exists. 7. Section 81.1Of This section clari�es the method for reportin� discrimination. Previous versions of Chapter 81 have been silent on the issue of reporting discrimination in contracts. This section directs vendors to the City's Department of Human Rights or the State Department of Human Rights. • � I �y� �� • Purchasing Policy Report # 1: An Evaluation of Saint Paul's Set Aside Program � Prepared By: Linda J. Camp Purchasing Systems Manager Priscilla Wyeth Management Assistant Jackie Hicks Business Assistance Program Supervisor Michelle Horn Business Assistance Specialist December, 1989 • Saint Paul/Ramsey County Joint Purchasing Office, City of Saint Paul Room 233 City Hall/Courthouse, Saint Paul, MN 55102 (612) 298-4225 �o -�a� TABLE OF CONTENTS � Section Page Contents 1 Acknowledgeme�ts 2 List of Tables 3 Introduction 4 Background: The Evolution of the Set Aside Program in Saint Paul 5 The Begi�}nings 5 Program Changes 5 Interim P�ogram 8 1989 Research a�d Program Evaluation 9 Methodolpgy 9 Findings From tl�e Research 12 Survey Results 12 � Other Key Findings From the Research 16 Conclusions and Recommendations 24 Sources Consulted 26 Appendices 29 Appendix A: 1989 Legal Opinion Appendix'B: Questionnaire and Summary of Responses � 1 �U-��a � ACKNOWLEDG$MENTS The authors of this report wish to acknowledge the following people for their assistance with this project: Participants in th¢ Round Table Discussions Jane Winston, Executive Director, Metropolitan Economic Development Association Mona Capiz, President, Capiz World Travel Virginia Gangl, Owner, Hawkensen Printing Co., Inc. Dr. Will Antell, 11�Ianager Equal Education Opportunity Section, Minnesota Department of Education Anthony Martine�, President, Martinez Corporation Dr. Albert DeLeon, Director, Council on Asian and Pacific Minnesotans Ralph Ross, State Procurement Center, United States Small Business Administration Earl Hall, Director, Small Business Development Center, College of St. Thomas Larry Lueth, Construction Engineer, Saint Paul Department of Public Works Rhonda Smieja, Administrative Assistant, McGough Construction Sandy Vargas, Di�ector for EEO Contract Management, Minnesota Department of Transportation Robb Randall, D�rector of Business and Employment Opportuniry, M.A. Mortensen Co. Everett Pedersoni President, Pederson Brothers Cement Contractors Bonnie Jellinek, �ontract Compliance Supervisor, Saint Paul Department of Human Rights Johnny Walker, President, Johnny M. Walker and Associates Key Informants Ipterviewed for the Pro�ram Review � Jan Morlach, Bu�iness Technical Assistance Coordinator, Chart/Wqmen's Economic Development Corporation Steve Thompson,�roject Manager,Saint Paul Department of Planning and Economic Development John Wirka, Project Manager, Saint Paul Department of Community Services Clarice Bradley, �lffirmative Action Coordinator, Hennepin County Purchasing Department Dorothy Lovejoy, Director of Customer and Vendor Services, Minnesota Department of Administration Thomas Kuhfeld, Project Manager, Saint Paul Department of Public Works Mara O'Neill, Economic Development Specialist, Saint Paul Department of Planning and Economic Development Josephier Brown, Director, Saint Paul Department of Human Rights William Patton, Deputy Director, Saint Paul Department of Economic Development Set Aside Adviso�,y Committee Members Joseph T. Boone, Owner, Boone Trucking Arthur E. Gardner, Personnel Director, Kraus-Anderson, Minneapolis Division Merle Harris, Owner, Gemini Industries Mark McCrea, V�Jorkers Compensation Division, Department of Labor and Industry John G. Nakasone, Owner, Painting By Nakasone Jann Peyer, Ownier, J. Peyer Assoc., Inc. � 2 �� ; y ;� .�: � LIST OF TABLES Table Pa ee Table 1. Profile of Respondents 12 Table 2. Certification Status of Respondents 13 Table 3. Years in Business and in Set Aside Program 13 Table 4. Suggestions for Improving the Program 15 Table 5. Saint Paul Set Aside Vendor Utilization Statistics 19 � I � 3 �a- � �a-- � ' Purchasin Polic Re ort # 1: g Y P Evaluation of Saint Paul's Set Aside Program INTRODUCTI�N The City of Sair�t Paul has long had a strong commitment to supporting small and newly emerging businesses,part�cularly those owned by women, minorities, or handicapped individuals. In 1976 the City adopted its first ordinance authorizing that public resources be directed to support such businesses. SinGe the adoption of that first policy, additional steps have been taken to solidify that commitment and see that activities are in line with federal and state guidelines. Under the current Administrative Code, the program is referred to as the Set Aside Program because it embadies the notion that a portion of City funds will be"set aside" so that purchases can be made from the general categories of businesses designated for assistance by the City. Overall responsibility f r managing and coordinating the Set Aside Program has been assigned to the Purchasing Div�ion since about mid-1986. Because the Purchasing Division handles both Saint Paul and Ramsey Caunty purchases, Purchasing staff also have responsibility for coordinating Ramsey County's Set Aside Program. Beginning in lat� 1987 the Purchasing Division launched an effort to fully evaluate and upgrade the � quality of purchasing services offered to City and Ramsey County departments. As part of these efforts, staff ass�igned to the Set Aside Program were asked to find ways to improve their services as well. As a result, a number of steps were taken during 1988 that greatly enhanced daily operations. T'h�se included the development of enhancements to the City's Finance System to fully automate the reporting of Set Aside business use by City Departments, improving the monitoring and reporting o� Ramsey County Set Aside business use, development of administrative rules for the Program, a�d increased consultations with City and County department staff. These improvement efforts were forced to come to a halt in January 1989, however, as a result of a ruling issued by the U.S. Supreme Court. The pivotal event was the Court's decision in the case Richmond, V� v. J.A. Croson Co. that the City of Richmond's Minority Business Set Aside Program was u�nconstitutional. Because of the similarity between Saint Paul's Set Aside Program and the Richm�nd Set Aside Program, the ruling raised many questions about whether the City could continue to operate its Set Aside activities as it had in the past. With the advice and counsel of staff in the� City Attorney's Office and the Purchasing Division, the Mayor directed the Purchasing staff to operate a modified Set Aside Program until a full analysis of the City's options could be complieted and recommendations developed. As a result of the Mayor's directive, Purchasing Division staff initiated a comprehensive evaluation of the City's pa�st and current Set Aside Program and did other research to help develop options for the future. I The report that follows details the research and evaluation process, findings and recommendatiqns for the future. � 4 y�� -��- BACKGROUND: THE EVOLUTION OF THE SET ASIDE PROGRAM IN SAINT PAUL � The Beginnings A "Set aside" progtam has been implemented by the City of Saint Paul in some form for nearly thirteen years. At its inception in late 1976, the program looked different in both scope and structure than it ddes today, though the overall goal was essentially the same. The intent of the program was to achieve an equilibrium in the composition of companies that did business with the City of Saint Paul relative to their representation in the general population. The initial ordinance stipulated that at l�ast 10% of total City purchases would be set aside for small and "economically disadvantaged" businesses. Under this initial ordinance a small business was considered to be one that was not dominant in its �eld of operatipn or affiliated with a dominant business. This meant that the business had to employ fewer than 50 persons and have earned less than $7,500,000 in gross receipts for the three years preceding e�try into the Program, or less than $3,000,000 in the same period if the firm was a general construc�ion business. Specialty construction businesses earning less than $1,500,000 in the preceding thre�e fiscal year also fell under the definition. Economically disadvantaged businesses were defined as those owned and operated by individuals who have "been deprived of the opportunity to develop and maintain a competitive position in the economy because� of economic disadvantage... arising from cultural, social, or economic circumstances or background, physical location if the person resides or is employed in any area declared as a labo�surplus area by the United States Department of Commerce, or similar cause." Other key feature� of the program were a self certification process for businesses and the ability � for Purchasing staff to use a 5% bid preference to make awards to set aside vendors. While the ordinance fixed the authority and responsibility for the program with the Mayor,in actual practice efforts w�re diffused throughout the City. Buying staff within the Purchasing Division assumed responsil�ility for establishing Set Aside requirements on purchases that they handled. For other transaction$, it was left to individual departments to determine how to meet program requirements. Th�re was no specific operating budget or staff assigned to carry out the mandates of the ordinance. Program Changes Over the next six years this first ordinance was amended a number of times to improve operations and address variaus problems that had arisen. A summary of the key amendments follows. 1980 Chan�es --The audience f r the program was redefined. The idea of serving small businesses was retained while the conce t of an economically disadvantaged business was replaced by that of businesses that were o d and operated by minorities, women, and handicapped individuals. --The 5% prefer�nce provision was dropped as a result of a City Attorney's finding that the provision was irn conflict with the Minnesota competitive bidding law. It was replaced by a provision that �ave the Purchasing Division the authority to require that the lowest responsible bidder subcontt�act a portion or percentage of work to a set aside business, and the authority to solicit comp�titive bids from among only set aside businesses. � 5 �� --The set aside requirement was expanded from 10% to 20% of funds appropriated for the purchase of goods and sarvices. --The small busin�ss definition was changed to a business that was not an affiliate or subsidiary of a business dominant in its field and had employees who work a total of 45,000 or less and had earned less than $1,000,000 in the fiscal year prior to registration in the program. --A fifteen-person Set Aside Advisory Committee was created to review applications for certification into the program and resolve any disputes over qualifications to become certi�ed into the program. --A full time staf�person was hired in the Purchasing Division to recruit businesses into the program, handle complaints and perform other administrative tasks. 1982 Chan�es � --The definition o�a set aside business was modified to include only those businesses that had been in operation for!,at least six months prior to submitting an application for the Program. --The scope of Cilty purchases included under the 20% provision was expanded to include transactions wh�re the City is the coordinator and administrator of the disbursement of funds under a grant or similar program. 1983 Chan�es • --The Administra�ive Code was further amended to give the Purchasing Division the authority to process applicat�ons for the Program rather than having this function performed by the Advisory Committee. --In concert with �his, the duties of the Advisory Committee were amended so their function was now to serve as an appeals group for those applicants who had been denied certification by the Purchasing Division. The size of the Committee was reduced from fifteen to seven members. --In the middle of 1983 the staff person assigned to the Set Aside Program left the Purchasing Division. The p�sition was not filled, leaving the program without any dedicated staff until 1986. 1986 Changes Though no ordinat�ce amendments were implemented during this time, a number of administrative changes were made to address problems that had arisen over the years. --The diffused responsibility for the program throughout the City had resulted in a weakened focus and general lack of coordination of City efforts. To solve this problem, it was decided to place responsibility for Citywide management and coordination of the Program within the Purchasing Division. --For the first tim� a specific operating budget for the Program was created that made it possible to fill the vacant�osition within the Purchasing Division and add two other full time staff to carry out the coordinaklon mandate. These new resources also permitted the development of a central list of ceqtified businesses, the initiation of an improved certification process, the � 6 �'�- ZZ2 • initiation of a program to monitor Set Aside activities, and the development of several information and outreach activities. Recent Impro�ements The most recant changes to the Administrative Code were adopted in late 1988. These were: --T'he additior� of a specific statement of purpose for the program. --Creation of�he spec�c authority for the Purchasing Division to request various documents from applicants tq verify that program eligibility requirements are being met. --Creation of the specific authority for Purchasing staff to do on-site inspections of businesses to verify that t1�e ownership is as stated on the application. --Creation of�the authority for the Purchasing Division to set up and administer a performance bond program to assist set aside vendors. --Development and adoption of administrative rules that clearly state how the program will be administered on a day to day basis. In the time since Program operations were consolidated within the Purchasing Division, the resources allqcated to support the program have e�anded in line with the expanded mission. In 1986, the Program staff consisted of two permanent full time professional staff and one temporary � clerical persoh with an overall budget of$34,723. (The budget was limited because the program was established vvlithin Purchasing at mid-year.) At the time of the Croson decision in 1989, a total of four full timel positions were authorized and the adopted program budget at $173,381. Among the most import�nt activities undertaken by the staff are: --Publication of On-Tar�et,a newsletter about the program disseminated to all program participants as well as a number of City and Ramsey County staff. --The development of a central database of businesses registered with the program and publication of a directory of such businesses. The directory is distributed to prime contractors as well as City and County staff to assist them in identifying businesses that may be used in City projects. --Ongoing monitoring of Set Aside use by City and County departments and generation of quarterly reports of the statistics and other program activities. --Reviewing City and County purchases to determine where set aside vendors may be used and establishing set aside requirements for purchases. --Consultatians with department staff to explain the Set Aside Program and identi.fy projects where set aside v�endors may be used. --Maintainulg contact with staff of similar programs in other jurisdictions and monitoring relevant legislation and rulings. --Recruitin�, certification, and recertification of businesses into the program. � 7 i �v - ZZ� • --Conducting training sessions, along with other information and outreach activities for program participants and potential participants. --17evelopment af a performance bond program. Interim Program In late January 1989 the pace of Set Aside Program activities was slowed for a brief period as a result of the U.S Supreme Court ruling in the case of the City of Richmond v. Croson. Like Saint Paul, Richmond had adopted an ordinance permitting the "set aside" of a portion of city funds for purchases for firms owned and operated by racial minorities. The Court found that such programs were unconstitutional unless they were designed to rectify specific, documented patterns of discrimination. Local governments could, however, operate "race neutral" programs to help businesses. In response to the Court action Purchasing Division staff began working with staff from the City Attorney's Offic�to determine the impact of the ruling on Saint Paul's current and future Set Aside activities. This preliminary review process included a review of recent bids, compilation of some basic data on �rendors certified under the City's Set Aside Program, a review of existing requirements a�hd Program documents, discussions with staff in other jurisdictions, and the development of a legal opinion. The legal opinion appears in Append'v� A. From this revie�vv process, staff determined that certain portions of the City's Set Aside ordinance appeared to be unenforceable in light of the Richmond case. According to the City Attorney's • opinion, the cas�cast"serious doubt upon the constitutionality of those provisions of the ordinance which provide a mandatory percentage set aside of local contracts for companies which are owned by handicapped persons, females, or minoriry persons. It was also found, however,that there were �� a number of portions of the ordinance that were not affected by the ruling. These included the provisions for a small business set aside and other "non-race based" activities such as educational programs and assistance with performance bonds. As a result of thas work staff have been operating an "interim"program since approximately March 1, 1989. This has consisted of implementing the 10% set aside for small businesses, recruitment and certificatio� of businesses that meet the small business requirement and, dissemination of information and technical assistance to program participants.T'hey have also continued to work on the developmen�t of a performance bond program. At the time of the Croson decision, there were a total of 433 vendors registered in the Program, with 183 of them certified as small, 124 certified as female owned, 116 certified as minority owned, and 8 certified as handicapped owned. Of those in the last three categories, only 11 did not meet the Program requirements for small businesses. Hence, the Cityt has been able to continue to serve many of the same clientele envisioned in the Set Aside ordi�ance during the research and evaluation process. • 8 % _ _ .;�_ ;,< ,�i � 1989 RESEARCH AND PROGRAM EVALUATION As the history shows, Saint Paul's Set Aside Program has been the subject of discussion and change on a number af occasions over the years. When problems and opportunities arose, policies and operational details were modified accordingly. On an ongoing basis, staff monitored and documented th�e number of City and Ramsey County contracts and dollars received by businesses registered in t�e Program. It appears from the record, however, that no mechanism was ever developed for periodically evaluating the Program as a whole. Consequently there is little information o� whether the overall purpose of the Program has been achieved over the years. Because of thQ lack of a systematic review process in the past and because of the significance of the Croson ca$e, Purchasing Division staff felt that it was important to conduct a comprehensive program analysis and research process before developing recommendations. The process that was used therefore, included a range of approaches and information sources. A full description of the methodology appears below. Methodology 1. Set Aside �Xendor Survev Purchasing sta�f felt that it would be extremely important to incorporate some direct feed back from vendors partiCipating in the Program into the evaluation process. To get that feedback, staff developed a questionnaire on various aspects of the Program and sent it to 413 businesses in early July. The surwey population was made up of all of the vendors registered in the program at that � time and 9 randomly selected vendors who had previously been registered but who had elected not to renew. The businesses were given two weeks to return the survey to the Purchasing Division. At the end of the two we�k period, a reminder letter was sent to all. A total of 186, or 45%, of the businesses returned the surveys. All of the responses were then reviewed and tallied. A copy of the questionnaire and full description of the results appear in Appendix B. 2. Round Tables and Interviews Purchasing staff were also interested in gathering information from local individuals who had some special knowl;edge or insights about the audience being served by the City's Set Aside Program. To accomplish this, staff conducted a series of"round table" discussions with key resource people to explore th� needs of the target population and get their suggestions about possible activities to undertake. Three round tables with a total of fifteen people were conducted in late June and early July. Participants iincluded representatives of various Twin Cities area set aside and business assistance programs, representatives from minority organizations, private contractors, and representatives of educational programs serving small business owners.(A complete list of the round table participants appears in the Acknowledgement section on page 2.) • 9 �o � 2z � . Among the topics discussed were the unmet needs of women and minority owned businesses and the appropriate �ole for local governments in servicing these needs. All of the round table discussions were Itape recorded and the significant points noted. There were another nine individuals who were unable to participate in the scheduled round tables. Because it was fqlt that their input would be important to the process, staff decided to interview them separately, �ocusing on the same topics as in the round tables. Their comments were also documented and reviewed later. 3. Set Aside Adv�sory Committee The Set Aside Program currently has an advisory committee whose charge is to hear appeals from those vendors who have been denied certification and to help with information and outreach activities for the Program. The Committee is made up of 6 individuals who either operate businesses certifi�d in the Program or have some special expertise to offer. This committee w�as used in several ways as part of the research process. First,committee members were given copie�of the questionnaire to fill out. These responses were tallied and have been included in the n mbers mentioned above. In addition, staff conducted a round table discussion with them to gaitt� their insights. And, finally committee members were asked to review and comment on a number of program activities planned for 1989. 4. Interviews witt� Ci ,ty Staff and Elected Officials Purchasing staff identified a number of City staff people who had some involvement with the • Program over th�years or who were working with related issues. These staff were all interviewed and asked to identify any special problems they had observed along with su�gestions for improvement. A11 current members of the City Council were also contacted for input. 5. Review of Othgr Pro_r�aTriS In the course of t2�lking with people and surveying the current literature, Purchasing staff identified some other Set Aside Programs around the country that seemed worthy of examination. In some cases the Programs were operating noteworthy activities such as training sessions for vendors or performance bond support. Others were considered to be models of how to structure a set aside program under tHe new climate created by the Croson case. Staff conducted a number of phone interviews with representatives of these other programs and reviewed available documents. The specific programs contacted were those operated by: Atlanta, Georgia; Seattle, Washington; Baltimore, Maryland; State of Ohio, State of Maryland, Portsmouth, Virginia; Milwaukee, Wisconsin; Minn�apolis, Hennepin County, the State of Minnesota, and the local office of the Federal Small Business Administration. 6. Review of Le��l Cases During the past fiew years several legal decisions have been handed down by Courts at different levels that have had an impact on minority and women's business programs. Staff reviewed the relevant cases as part of their research process. (See the List of Sources at the end of this report for a complete lislting of the cases analyzed.) • 10 �p - Z 2�- • 7. Performance �ond Interviews Under the City's current Set Aside ordinance, the Purchasing Division has been authorized to set up a special performance bond program to assist businesses registered in the Program. During 1989, staff have spent considerable time working to structure such a program. As part of the bond program development process, staff surveyed 25 Set Aside Program participants to learn about their e�erience� in getting performance bonds. T'he results of this survey were an important consideration in the overall review process for the Set Aside Program. 8. Review of Bu�iness Development Literature Staff did some research on the general topic of small business development. Sources were reviewed on trends and iss�tes of emerging businesses within Saint Paul as well as state and national statistics. 9. Review of Fe�leral Business Assistance Program Requirements Staff gathered cppies and reviewed all of the requirements for set aside and business assistance programs that h�ve been promulgated by the federal government. In some cases the City receives grants through sqme federal programs that are governed by such requirements. Because the Croson ruling did not affect the federal requirements, staff wanted to identify those instances where minority and female business utilization requirements are still appropriate. 10. Review of P�st Program Records Finally, staff examined available records of Saint Paul's Program since its inception. These records • included reports on past Set Aside vendor participation in City and Ramsey County contracts, reports on progr�m activities,past budget and performance documents, and relevant forms,letters, and memos. • 11 I �� z� FINDINGS FROM THE RESEARCH • Survey Results The Set Aside vendor questionnaire yielded a wealth of information about Program participants and their experiences with the public purchasing process. It proved to be useful both in looking at where the Prog�am has come from and where it should go in the future. Of the 186 vendors who responded to the questionnaire, the largest proportion (38%) indicated they were involved in building or construction services, while the smallest (4%) considered themselves to b� involved with professional services. Approaumately 78% indicated they had been certified as a small business, with fewer businesses indicating a specific ownership category (see Tables 1 and 2 . The group was almost equally divided in terms of longevity. About 48% of respondents ha�been in busmess for less than 10 years,52%for between ten and twenty years (see Table 3). Table 1. Profile,of Respondents Survey Responses Program Totals Categorv # % # % • Building, Constxuction 71 38 99 24 ProductSuppliers 40 22 111 27 Miscellaneous 5ervices 39 21 84 20 Building Related Services 27 15 70 17 Professional Services 7 4 49 12 No response 5 _ Totals 189* 100 413 100 *The number is,greater than t e number of survey respondents because some vendors marked more than one categqry. • 12 �p _ Z��, � Table 2. Certifi�ation Status of Respondents Survey Responses Program Totals CategorX # % # % Small 146 78 393 93 Woman Owned 69 37 123 29 Minority Owned 52 28 111 26 Handicapped Ot�vned 7 4 8 2 Totals 274 147* 635 170* *Here the numbers total up to more than 100% because businesses can be certified in more than one category. • Table 3. Years an Business and in Set Aside Program Years in Business Years in Program CategorX # % # % Less than 1 Year 2 1 21 1 1 to 4 Years 33 18 99 53 5 to 9 Years 54 29 50 27 10 to 14 Years 29 16 10 5 15 to 19 Years , 25 13 20 or More Years 42 23 • 13 �� Expectations an�i Results Survey respondemts offered a range of comments about their expectations for Saint Paul's Set Aside Program and e�eriences with it. The top three reasons they identified for participating in the Program were: -to learn about future City contracts -for referrals to other contracts -to interact with other businesses The actual expQrience of vendors who responded was m�ed. Some 45% said they had been awarded a City contract, 42% had not. Only 15% indicated that they had won a private contract and 16% said they had networked with other businesses. About 40%indicated they bid on between one and four contracts a year. However, 22% of respondents said they had never bid on any City contract. When asked about their experiences as prime or subcontractors,35% said they had never served as a prime contractor and 29% had never served as a subcontractor. Overall, respondents seemed dissatisfied with their euperiences in the Program. About 31% felt their expectatians had been met compared to 47% who felt they had not. They offered an interesting array of comments to support this point of view. The most common concern reported was that businesses are not aware of the available work and have not been contacted by the City. Other commen�s suggested that participating businesses do not have accurate information about City buying pro�edures. Indeed, many businesses seemed to believe that registering with the City would guarante�e them work and that they would not need to interact with the City in the same manner as they would with any private company. There was an expectation that all City purchases would be handled as advertised bids when, in reality, a large proportion of City purchases are . accomplished by using less formal solicitation methods, such as written or phone quotes. Respondents also lacked information about what commodities the City purchases and who the appropriate buyer is for a given commodity or service. Participants wanted increased contact with Set Aside staf� and buyers, as well as ways to meet prime contractors who might be seeking subcontractors �or City projects. Procedural issues were also frequently identified as a problem. Comments included complaints about insufficient bid preparation time as well as the amount of time and pape�work required to get paid. Several respondents expressed the opinion that the amount of paptrwork associated with the Program was not worth the few benefits received. A very signific�nt problem enunciated by several respondents was that the City does not take operating costs sufficiently into account. Given that the City accepts only the lowest responsible bids, many cert;ified businesses cannot compete because of the higher costs of doing business they experience just because they are small. Respondents urged that larger projects be broken into smaller jobs to make it possible for more vendors to participate. Benefits of the Program cited were that respondents became eligible for contracts, they became more aware of�contracts and contractors and the opportunity to prove their capability to the City. The Set Aside�ercentages and the On-Tareet newsletter were identified as program offerings that have worked wjell. • 14 ��- �z� � Sugeestions for Improvement Survey respond�ents offered many helpful suggestions about how the Program could be restructured in the future to better serve their needs. These suggestions are summarized below. Table 4. Suggestions for Improving the Program Procedural Improvements -Reduce the p�perwork associated with the Program -Streamline and speed payment schedule -Provide easier access and greater information on specifications -Allow more tiime to prepare bids -Improve conttact management and supervision -Remove bonding requirements on projects under $200,000 -Fxpand contr�ct opportunities to include housing projects and professional service contracts -Improve communication between businesses, project managers, and inspectors Communication -Survey partic�pants regularly -Provide more information about program offerings -Improve infopmation about available work by offering such things as a quarterly list of projects, an annual semin�r on the kinds and anticipated values of City contracts,providing a list of more than � just advertiseid bids, or offering a "hot line" for questions about pending and awarded contracts -Continue the On-Tareet newsletter Proerammati� -Check credemtials of businesses in the Program annually; include on and off-site inspections -Use staff who have a business background -Break jobs dawn into smaller pieces so small companies can bid on them -Work more Closely with client businesses, including training and providing business development assistance -Hold workshops -Spend more time counseling each business -Work to expand the pool of certified businesses used; don't keep using the same ones -Provide morie information about available businesses to large contractors -Look at MN Department of Transportation, Minneapolis, Hennepin County, and Metropolitan Airports Co#nmission programs for ideas A summary �f the responses to the entire survey appear in Appendix B. � 15 - �r�-�z�- • Other Key Findings From the Research 1. Performance bondin� is a siQnificant barrier for vendors. Chapter 383A.32 of the Minnesota Statutes requires that vendors file a performance bond on City and Ramsey CDunty projects having a value of $2,000 or more when labor only, or labor and materials are involved. Over the years, Purchasing staff have noted that this bond requirement is a problem for many vendors, but particularly those who have been involved in the Set Aside Program. Staff have been trying to work out a solution to this program by establishing a performance band revolving fund administered by the City. As part of the fund development process, they asked vendors certified in the City Program to provide information about their e�cperiences with bonds. Twenty-five vendors offered to provide information, but the survey population was�arrowed to 22 because two indicated they never needed bonds and one had never done business with the City. All but one of the respondents reported that they could not obtain performance bonds regularly, easily, or at competitive rates. The major reason cited was that bonding companies seek a minimum 20% ollateral in liquid assets (primarily cash) for each bond. Thus a company bidding on a $250,000 p�oject would need to have upwards of$50,000 in the bank just for that one job. Additional jobs rovould require additional collateral. Respondents al�o reported that the business's track record counted for little in obtaining a bond. It did not matteX whether the company had been in existence for 15 years or more; the net worth and available lic�uid assets were the primary criteria used. Another problem identified was that bonding comparlies include a comparison with industry profit margins as part of their calculations but appear not to keep the standards current in terms of actual profit margins. In some cases t the comparisonS might be five years out of date. In times of economic downturn or industry squeeze, as is c�irrently the case in construction, the profit margin will look poor in relation to the standard. T'hus, expectations are unrealistic, and worthy businesses frequently do not receive bonding approval. Some women and minority respondents reported that they felt their personal life was evaluated in addition to the �ompany's profile. They recounted incidents where, having met all the stipulated requirements,new requirements were added or they were still denied bonding. Others stated their belief that there were instances in which white male owned companies in poorer financial condition received bondin� while female or minority owned companies in better condition did not. All respondents rep�rted that they felt mechanical and electrical companies were receiving much closer scrutiny than be�ore,or than warranted, as sureties seek to minimize exposure in the wake of recent industry losses dn construction projects. Alternatives available to companies unable to obtain bonding include the Federal Small Business Administration �ond Program, putting up private collateral such as a home, paying up to five times the prevai�ing rate for bonds, or taking only jobs as a subcontractor. The Small Bus�ness Administration Program will bond many companies for large amounts. However, the a�nount of paperwork is considerable for small businesses, funds are not always available, and th�e cost of the bond is approximately four times the prevailing rate. Few business owners feel it is xeasonable to put private assets at risk for a business venture and so will not accept a lien on their hbmes. Small businesses have little reason to pay the premium rates because they do not have the cash and the cost drives up the dollar amount of a bid. Most of the businesses respalnding indicated they worked as subcontractors, despite their technical ability to perform as a getneral contractor on many small contracts. � 16 l'� , Zz� • 2 The legal env�ironment surrounding set aside pro�rams has chaneed substantiallv. Only a short amount of time has elapsed since the U.S. Supreme Court issued the ruling in Richmond, VA v.J.A. Croson Company and many questions remain unanswered about what kinds of programs wila be viable in the future. What is clear is that the legal climate surrounding "set asides" is very different now than in the past. Local governments will have to exercise great care in structuring ahd implementing business assistance programs from now on. The following f�ctors from the Croson case impact on the restructuring of Saint Paul's Set Aside Program: -The Prqgram may include specific"quotas"for using minority owned businesses only insofar as necessary to rectify specific and clearly documented instances of racial discrimination. -Where specific evidence of racial discrimination cannot be found, business assistance programs may be operated but they must be "race neutral." Shortly after the Croson decision, the U.S. Supreme Court reviewed the case of Milliken v. Michigan Road Builders Association. The final decision handed down was similar in that it ruled that a female and minority set aside program operated in the State of Michigan was unconstitutional. The importance of the decision for Saint Paul and other local governments was that it added the notion that gender based programs were also unacceptable unless they were designed to address specific instances of discrimination. � A number of �'ederal agencies have set aside programs aimed at women or minority owned businesses. Th�s far the courts have found them to be permissible because the federal government has the ability t�use"broad"measures to rectify societal discrimination under the U.S. Constitution. Saint Paul doeS receive funding from some of the federal agencies that have issued set aside requirements ahd thus must continue to follow those requirements when spending the federal dollars. As this report was being developed, the United States Senate and House of Representatives had both commenctd action to counteract the effect of the Croson decision. There is significant support among�Congress members for local governments having the authority to institute programs that specifically benefit minority and female owned businesses and others who may have difficulty competing in th�e marketplace. Senator Edward Kennedy is spearheading the efforts on the Senate side. It is anticipated that both houses of Congress will be introducing legislation sometime in January 1990. Purchasing staff will be monitoring the progress of such legislation closely, since there is a clear intent by some members of Congress to create legislation that negates the impact of the Croson ruling. 3 Small and n�wl�reine businesses are important to Saint Paul's economy. There is ample�evidence that small and emerging businesses have an important role to play in Saint Paul's economyi. Staff found some excellent examples of the impact of such businesses in some recent literaturie. � 17 �o- 2��- � --According to Da�vid Birch, author of Job Creation in America, small companies have a very key role to play in fueling a local economy. In a December, 1987 presentation to the Saint Paul Area Chamber of Commerce he stated that nationally more than 65% of all jobs are created by companies with fewer than 20 employees and 80% by those with fewer than 100 employees. T'his has been the trend since the early 1970s. Birch further indicated that nationally 8% to 10% of all companies and jobs are being lost each year. Extrapolated to Saint Paul, this means that we must replace nearly 50°�'0 of our job base every five years. --In August, 1984 �he Saint Paul Department of Planning and Economic Development published a survey of Saint Paul and metro area businesses entitled Saint Paul Grow Business Survev Report. This survey found� that in 1984, 50% of the jobs in Saint Paul were created by companies with fewer than�ve employees; 82%were created by those with fewer than 25 employees; and that 60% of Saint Paul busi�esses had revenues of less than $500,000 annually. About 52% of the 1,372 Saint Paul businesses surveyed expressed interest in learning how to sell to the government; 12% identi�ed obtaining low interest rate financing as a significant obstacle. Saint Paul based companies contribute more than jobs to the economy. Saint Paul companies purchase more go4ds (44.5%) from other Saint Paul companies and sell more goods within Saint Paul (56.5%) than non-Saint Paul based firms. IVianufacturing and construction led with 64% of all purchases mad� in Saint Paul, followed by service industries with 53%. --Finally,in Fosteri�ne the Development and Growth of Small Locally Owned Businesses(1984),John Demma offered several important insights about small businesses. This report was developed under � the aegis of the S�int Paul Small Business Assistance Program and the Private Industry Council. According to Demma, management expertise is the key motivation for investment in new and emerging firms. `1Vithout solid management skills, a company is at a disadvantage in obtaining working or start-up capital. He further stated Chat lack of awareness on the part of small businesses of the resources available is a significant problem. Building greater awareness and use of the resources should be a goal of a business assistan�e program. 4. Some ast olic' s and o erational rocedures need to be restructured so that the full intent of the ro am can b realized. Over the years the City has been successful in making purchases from the vendors targeted by the Set Aside ordinanae. Vendors in the various categories have been identified and certified into the program and utiliz�tion percentages set on contracts. The review process suggested, however, that the full of intent of the Program has never been achieved. In some cases, the overall policies or operational practices were responsible for the unsatisfactory results. Certification Proce�ss. A good case in point is the certification process. During the early years of the program, a self certification process was used for vendors who wished to participate in the program. This me�nt that vendors attested that they met the requirements of the program and no further verification was done by City staff. The philosophy behind this process was that a simple process would make the program more accessible to a wide range of vendors. This self certification process was ultimaGely disbanded because it was relatively easy for vendors who did not really meet � 18 �� _zz� the program re uirements to become certified. Of particular concern were those instances where � the minority o female owner actually had no meaningful role in the operation of the business, or those situation where the business was simply a "front" for a larger business outside the intent of the Program. comprehensive screening process was, therefore, put in place in 1984 to ensure that only truly ualified vendors would reap the benefits of the program. Strengthening e screening process, however, has yielded both positive and negative results. On the one hand it has largely eliminated the problems of fraud and misrepresentation. On the other hand, it has in reased the amount of time and effort it takes vendors to become eligible for the program. The aperwork burden was frequently cited as a problem by respondents to the survey described earli r. And, in fact, prior to the survey, some Program participants indicated to Purchasing sta that they had decided not to become recertified because of the kind and amount of information hat they were required to submit. The improved ertification process has also resulted in an overall reduction in the number of businesses re ' tered with the program. Between 1977 and 1983,when the self certification was in force, an estim ted 1500 vendors participated in the program. However, during 1989, the number of vendors regi tered at any given time has averaged around 400. Table 5 shows the percentages of dollars awar ed to set aside businesses over the years. The reduced number of vendors is one of the key reas�ns why these percentages have changed so dramatically since the beginning of the program. Table 5. City Set Aside Vendor Utilization Statistics . Year Set Asi�e Total ($1 % Small % Female % Minoritv % Handicapped 1977 to 1980 n� data available** 1981 9,479,1�1 25 5 4 * 1982 10,670,&°76 29 8 4 * 1983 14,454,163 24 7 4 * 1984 16,860,4�81 31 7 11 * 1985 no data available** 1986 no data available** 1987 4,604,O�12 1 4 under 1 0 1988 6,995,1p6 9 5 1 under 1 1989 5,807,122 8 2 under 1 under 1 *Dunng these �ears the data for the small and an icapped categories were counted together to parallel the req�irement in the ordinance. In recent years, each specific category has been tracked. **Staff were uqable to locate any records in the Purchasing Division for these periods. . 19 ��_zzz� A final im act o I the certification rocess ' t a 't w # p # p �s h t i has been a strong determmant of ho the staff resources for th program have been used. It is estimated that, in the past, staff spent between 6 and 10 hours pe application for an initial registration and a minimum of three hours for each renewal. Staff a o spent about three days each month doing field spot checks to verify ownership information. The net result h�s been that the largest proportion of staff time has gone into paper processing activities at the expense of information and outreach efforts and providing direct technical assistance. This�act was also evident from the survey results. There were many comments about lack of informatiion about projects, procedures, and misconceptions about how things worked. Measuring Utili�ation. A second example of mixed results has to do with the base for evaluating utilization. All versions of the ordinance to date have specified that the set aside awards were to be drawn from all of the goods and services purchased by the City each year. Here the goal was to make sure all of the possibilities for using such vendors were being explored. T'he underlying assumption has been that it is osp sible to make purchases from set aside vendors across all categories of exp�nditures. However,with the improvement of the monitoring function in the last several years, Pulrchasing staff have determined that this possibility simply does not exist. And, because an inapAropriate standard has been set up in the ordinance, some of the positive results achieved have ndt been readily apparent. A good case in ppint is local telephone service. This meets the ordinance definition of a service but yet it is cur�ently only possible to purchase this service from one source--the local phone company. The p�one company does not and likely will never meet City requirements to be a set aside vendor. Tt�us, it makes very little sense to include the dollars spent for phone service in the • base used to calciulate utilization percentages as has been specified in the ordinance in the past. Inclusion of such kinds of purchases only inflates the base and therefore skews the information the City has availabl� to monitor the effectiveness of the Set Aside Program. A far better strategy would be to keep goal focused on all goods and services but permit some ability to exclude from the base those ar�as where set aside purchases will never be possible when evaluating performance. Inconsistent Base. Another related issue emerged during the review process. Purchasing staff have used several methods of tracking set aside vendor utilization since the program's inception. Initially, the tracl�ing was accomplished manually with staff making note of the dollar amounts of purchases handlec�by the Division and the dollar amount of the contracts going to certified vendors. Using these raw�aterials, utilization percentages were calculated. As work functions have become automated withi� the Division, recording of activity and calculating percentages has gradually shifted to availaMle microcomputers. In late 1988, calculation of utilization percentages was ultimately shifted to the City's central computer system and Finance System software. The significant ppint to note here is that although the ordinance suggested the proper test for measuring perforqnance--dollars awarded to set aside vendors compared to total dollars spent for goods and service�--it has never been applied consistently. Before the completion of the Finance System enhance�nts, the data gathering process was so cumbersome that Purchasing staff could not easily get thel information needed to do the correct calculations. Given the staff resources available, it was o�nly possible to do more limited monitoring. To further clarify this point, there are some kinds of purchases that legally do not have to be handled by the Purchasing Division and others that have some Purchasing involvement but where the paperwork is not handled by Division staff. In the earlier days of the program, the percentages • 20 i �� z�� were arrived at�by comparing the total dollar value of the awards to certified vendors to the total dollar value of only those purchases handled by Purchasing staff because that was all that could be reasonably accdmplished with the resources available. T'he recent enhancements to the Finance System have dr�matically improved the monitoring capabilities. And, since early 1989, the reports generated from!the Finance System have compared awards to certified vendors against total City spending for gdods and services as required by the ordinance. Hence, it is not possible to gain a clear understanding of the City's experiences with vendors from Table 5 because it does not offer an "apples to apples" comparison. It is anticipated, however, that very sound data will be available in the future b�cause of the recent changes. Vendor Ava�a��ity. A final point worth noting is that staff have had considerable difficulty in placing set asidle requirements across all the areas of City purchases. For some commodities such as heavy equip�nent, which is a significant expenditure item for the City, there are no certified vendors to be ;solicited for bidding. In other areas, such as banners and specialized promotional items, there ar� quite a few vendors, but the City purchases these items infrequently and in small amounts. Staf�believe that stepped up recruiting efforts may help solve such problems in some commodity ar�as. What is also needed, however, is some better vehicles for informing vendors about what the�City purchases. Where the City rarely purchases a commodity, it may be better not to accept vendbrs into the Program at all rather than lead them to expect that contracts will be forthcoming. 5 There ma�be a danger of having vendors become too de�endent u�on �overnment assistance programs. During the caurse of the round table discussions, a number of participants raised the issue of • Program dependency. Specifically, the concern was that some vendors may be relying too heavily on governmenit contracts gained under set aside laws and not developing a broad enough revenue stream. Cited�as evidence to support this concern was several recent newspaper stories describing minority or fe�male owned businesses that had failed as a result of the Croson decision. When governments cseased enforcing requirements to use such vendors, the vendors seemed to have prob lems in getting contracts. There was a strong suggestion that, as the City looks to restructure its program, som�e safeguards be developed to avoid this problem. As part of the� research process staff investigated some alternatives for addressing this issue. One important str�tegy will be to develop a mechanism for interacting with vendors registered in the Program to note how they are progressing toward becoming a viable business with both a public and non-publilc customer base. Staff have discovered that the State of Minnesota is currently using the Robert IV�orris Associates ratios as a method of monitoring the progress of businesses in their program. Th�se are standard financial ratios used by the banking industry to determine whether a business is�a good candidate for a loan. They help to chart the progress of various kinds of businesses in iseveral key areas such as debt-to-equity, liquidity, coverage, and management. Staff believe these�atios could be one tool to help evaluate whether businesses are developing into solid vendors in thie purchasing marketplace. 6. Governmepts throuehout the country have responded in a varie of ways to the Croson decision. Purchasing s�aff have been watching the post-Croson activity around the country and talking with representativies from business assistance programs. What is apparent from this research is that there is no �lear consensus emerging about the best approach to the ruling. There are many • 21 �o� z �� examples of citi�es who are restructuring their programs so they are "race neutral," others who are � working to doqument past discrimination so they can justify continuing existing programs, and others who hav�e continued to operate as in the past. Some in this latter category (including the City of Minneapolis) have been sued under the Croson ruling,with the cases yet unresolved. It is clearly too soon to tell which will prove to be the most prudent course of action. 7. The term "S¢t Aside" m�be creating; some confusion for vendors. During the couVrse of the round table discussions, some participants suggested that the term "Set Aside Programr may be problematic. They said that the term led some vendors to believe that the program would guarantee that a specific contract would be awarded or "set aside" to a specific vendor. This'is not the case because of the need to comply with Minnesota low bidding requirements. Suggestions were made that if the program were restructured that the name be changed to moce accurately reflect the intent of the program. 8. There are a�number of good local sources of assistance for small and emer ing businesses. In the course mf setting up the round table discussions, staff identified quite a few agencies and organizations that provide services to vendors that have traditionally been served by the City's Set Aside Prograrrr. These include agencies such as CHART/WEDCO that help people gain the expertise and financial backing to start new businesses and the Small Business Development Center at the College pf St.Thomas that provides ongoing training programs in various aspects of business management. With such a w�ealth of resources available in the local area, staff felt it was extremely important • that the City t2�ke care not to unnecessarily duplicate existing services, but rather fill in those gaps appropriate fqr the City to address. They further felt that any future City program should be structured to bluild around,and work in partnership with,the other available resources to strengthen the overall support available for new and disadvantaged businesses. 9. The City shpuld continue to pay attention to the subject of vendor discrimination. The Croson d�cision revolves around the idea of specific, documented instances of discrimination in awarding pu�blic contracts. As staff reviewed available records of the City's Set Aside activities since the begi�ning, they were unable to identify any evidence of discrimination problems. There was no evidence of letters or complaints alleging discrimination in the Set Aside records assembled when the coordination function was established within the Purchasing Division.Similarly, staff were unable to ide�tify any specific examples from any bid documents on file. A further att mpt to surface such issues was made through the vendor survey. Discrimination was not ident�ied as a problem by any of the survey respondents. However, during discussions with the round table participants and Set Aside Advisory Committee, several individuals stated that they believed that discrimination exists in the local marketplace. They expressed strong feelings that the City �hould retain some kind of fixed requirements for awarding contracts to female and minority own$d companies, fearing that without such requirements,vendors would not be awarded public contracts. • 22 / �i._ �� j' `/_ � After the Croso�► decision was issued, the State of Minnesota initiated a research process to determine the pKesence, if any, of discrimination within the State of Minnesota. The research process includes an analy'sis of all socially and economically disadvantaged businesses in the state to determine how they are faring in the marketplace compared to non-economically disadvantaged businesses; a suirvey of the financial performance of socially and economically disadvantaged businesses, and ]holding hearings throughout the state to collect information on the presence and impact of discrir�iination within the State. One Purchasing staff inember attended the State hearing conducted in Saint Paul on December 9, 1989. Fifteen individuals testified before a panel of seven commissioners that included three state legislators. In sqme instances the individuals stated their view that they had been victims of sexual or racial discrimi�nation. No specific testimony was offered related to Saint Paul's program. Among the other concerns raised was the need to have better coordination among the different business assistance progr�ms that e�ust in the Twin Cities area. Vendors are particularly frustrated by varying sets of requirements for certification and the many different forms they must fill out for each program. Better coordination is definitely needed. The State commission will be holding additional meetings with the Associated General Contractors and local trade unions among others in the coming weeks. A final report is e�ected to be produced by February. Purchasing staff have maintained contact with the staff working on this research effort and will continue to monitor developments. Purchasing staff have not recommended that formal hearings be conducted for Saint Paul as part of the research �rocess to avoid duplicating the comprehensive efforts of the State of Minnesota. Once the State xesults are available, some additional steps may be appropriate. Staff feel that it • will be extreme�y important, however, to build in some more formal methods of monitoring purchasing activ�ties for discrimination. Such methods should include ongoing collection and analysis of data about vendor utilization and a clear method for reporting and investigating instances where',a vendor feels discriminated against in the public procurement process. 10. 'There is a n�ed for an on�oin�process to receive input and evaluate the effectiveness of the Program. The staff gained a great many insights as a result of the vendor survey. As part of their survey responses a nu�ber of vendors indicated that they were very pleased to have the opportunity to comment on the program. It is clear from this that some kind of formal survey process should be built into the annual program operations in the future. It was also extremely useful to have input from local"experts° through the round table process. With so many knowledgeable and thoughtful people available in the area, holding round tables periodically seems like an excellent way to bring valuable insights and expertise to bear upon Program activities. • 23 �� z�z , CONCLUSION�a AND RECOMMENDATIONS Based upon the�'indings of the research process,Purchasing Division staff have developed a number of recommendaCions about the City's Set Aside Program. 1. The City sho�ld continue to operate a business assistance program to help new and emerging businesses to'become viable actors in the public purchasing process. There is a public purpose to be served in helping certain businesses who have not yet reached their full pot�ntial as vendors, particularly those who have been deprived of the opportunity to develop and r�aintain a competitive position in the economy because of economic conditions or past discrimi�ation. 2.Because of thle legal environment created by the Croson ruling and other recent court decisions, the program �hould be structured so that it is race and gender neutraL The program should be targeted at economically disadvantaged vendors, with an overall annual goal set for purchases. There are many race and gender neutral strategies for providing assistance to�businesses that have not been fully implemented by the City. These include such things as assi�stance with meeting State mandated performance bond requirements. However, the City shoUld continue to watch the development of set aside legislation at the Federal level and keep the�option open to amend the Administrative Code to reinstitute specific requirements for using muAonty, female, and handicapped owned businesses when a more favorable legal climate exists. • 3. The overall thr�st of the program should be to help businesses develop as vendors so they can participate f1�lly and effectively in the City's procurement proce.ss. To avoid du�lication with other existing business programs, the City should focus its efforts on helping busimesses to become viable vendors. This means helping them to learn about the City purchasing process, kinds of goods and services needed by the City, how to properly submit bids on projects, and how to fully comply with City contract requirements. Given this focus, the Purchasing lDivision should continue to serve as the point of program management and coordination. Because the City needs to balance its interest in helping businesses with the need to make sure that public services are being properly implemented in a cost effective manner, the Program should not be directed to those businesses in the very early stages of development. Businesses needing fin�ncing or other startup kinds of assistance should receive help through the Small Business D�velopment Program operated out of City's Department of Planning and Economic Developmemt or other similar assistance programs. 4.The Pro a�n should be structured to�nimi�.�the amount of paperwork required and maximize the direct�t�chnical assistance provided to vendors. The 1990 work objectives for the Program should be r�written to emphasize vendor assistance and to respond to some of the problems identified t]�rough the Program review process. T'he new vet�dor performance bond program is ready for implementation and some new training and outreach efforts were initiated in 1989. These should be continued and further expanded as • 24 �b-�� resources permit. Among the kinds of projects that should be initiated in 1990 are expanded • information a�d recruiting, additional workshops on how to do business with the City, additional round table di�cussions, continuation of the On-Target newsletter, and the development of a publication giving information on what items the City purchases.The Program should also include more opportut�ities for vendors to consult with Purchasing staff and receive referrals to sources of assistance with particular business problems. 5. The name of the Program should be changed from the Set Aside Program to the Targeted Vendor Devebpment Program. Such a name�hange would better reflect the emphasis on helping businesses develop as vendors and reduce some of the confusion about the purpose of the program that was identified through the research process. 6.The ordinance should be amended to specifically identify the City's Department of Human Rights as the place to receive and investigate complaints about discrimination on City contracts. Previous versiions of the Set Aside ordinance have been silent on this subject. The Department of Human Ri hts is the most appropriate place to handle such issues because it is staffed by people who a e experienced in handling and investigating discrimination complaints. The Purchasing D vision is not currently staffed to perform this function. The Purchasing Division should, howe�{er, continue to accumulate data on the utilization of minority, female, and handicapped bwned businesses for future policy making purposes. 7. The ordinanc�e should be amended to create a "graduation" point from the Program. • Such a graduation period will help address the "dependency" issue raised by some individuals during the re�earch process and will assure that City resources are going to support a wide range of vendors rather than just a few. 8. The City shotpld continue the present Set Aside Advisory Committee and evaluate its structure and dudes after a year. Until some of the new Prog-am thrusts have been implemented, it is difficult to determine whether the aurrent structure and mission are appropriate. The City should therefore look carefully at this matter after a some of the ideas have been carried out to see whether an advisory committee is needed and, if so, how best to use it. One possibility that has not yet been fully e�lored is to use an advisory committee structure to forge some n�ew partnerships with other local resources. It might be possible, for example, to dedicate some of the committee seats to specific kinds of expertise or types of organizations-- creating a kind of"blue ribbon" panel. This might help ensure that the City stays current with developmentS within the "business assistance" arena and does not duplicate services. 9. The Purchasing Division should strengthen the cunent process for ongoing evaluation and reporting on'�'rogram activities in its annual workplan. The evaluation process should include some method for gathering input from those registered in the Prograim along with assessments of various activities. An annual report on the Program should be m�de available to elected officials, Program participants, and the general public. • 25 �� -Zzz � SOURCES CONSULTED Legal Documer�ts and Requirements Chapter 645.445 of the Minnesota Statutes, Small Business Procurement Chapter 471.345 of the Minnesota Statutes, Uniform Municipal Contracting Law Chapter 81 of�he Saint Paul Administrative Code (1976, 1980, 1982, 1983, 1988 versions) Department of�Iousing and Urban Development,24CFR Part 570(Community Development Block Grants�nd Urban Development Action Grants,Final Rule). Federal Register;Vol.53,No. 172; T�esday, September 6, 1988, Rules and Regulations. Executive Orde�r 11625, Issued by President Richard Nixon, October 13, 1971, creating a National Program for Minority Business Enterprise Executive OrdQr 12432, Issued by President Ronald Reagan, July 14, 1983 creatin� a program for Minority Business Enterprise Development Executive Ord�r 12138, Issued by President Jimmy Carter on May 18, 1979, creating a National Prograr� for Women's Business Enterprise 24CFR Section�185.36 (e);Federal Register;Vol.53,No.58;March 11, 1988,Rules and Regulations. • Environmental Protection Agency, Procurement under Assistance Agreements; Federal Re isg ter; Vol. 48, No. 60; March 28, 1983;Rules and Regulations 49 CFR, Offic� of Secretary of Transportation, Participation by Minority Business Enterprise in Departnnent of Transportation Programs; October 1, 1987 City of Richmqnd v. J.A. Croson Co.. January 23, 1989, 57 United States Law Week 4132 Fullilove v. Kl�tznick, 448 U.S. 448 (19801 Michigan Roac� Builders Assn., Inc. v. Milliken, 834 F2d 583 (6th Circuit, 1987) AGC�Mattson;v. Multnomah American Sub�ontractors Association Geor i��a Chapter, Inc. v City of Atlanta City of Atlanta� Administrative Order 84-5 Chapter 360, r�vised, Milwaukee City Code, Milwaukee, WI Ordinance 774, revised, Self-Insurance Program for Commodity, Service, and Construction Contra�ts, City of Baltimore, MD � 26 �, Z � z � SOURCES, continued Publications Press release, June 19, 1979, City of Atlanta "Discriminating Tailors", Business Atlanta, June 1989, p. 133-137 "Satisfying the C�roson Standard",Minority Business Enterprise Legal Defense and Education Fund, Inc. City of Portsmquth Virginia's New Business Success Program, Summary Report Saint Paul Gro�v Business Survey Report, August, 1984. Saint Paul Department of Planning and Economuc Development. "Saint Paul's Edonomy--Economic Trends in Saint Pau1 1976-1987, Report 4-Employers." Saint Pa1u1 Department of Planning and Economic Development, 1987. "Fostering the evelopment and Growth of Small Locally-Owned Businesses" by John Demma. Publish�d by the Saint Paul Small Business Assistance Program and the Private Industry Council Speeches, Interviews, Ta�es • "WhaYs Happeped to Affirmative Action?" Presentation by Benna Ruth Solomon, Chief Counsel, State a�hd Local Lega1 Center, Washington, DC. and David J. Burman, Attorney, Perkins and Caie, Seattle, WA, at the 1989 Government Finance Officers Association Annual Meeting. "Is There a Pl�ce for Set-Asides?" Panel presentation at the 1989 Government Finance Officer Association Annual Meeting. Presentation to the Saint Paul Area Chamber of Commerce by David Birch, December 1987. Interviews with Darold Luze of the Office of Federal Contract Compliance Programs. Interviews wit1� David Mcllwain, Director of Public Works, U.S. Department of Commerce. Interviews with Dorothy Lovejoy and Wendy Van Kuyk,Customer and Vendor Services,Minnesota Depar�ment of Administration. Interviews w�h Robert Baldwin and Stephanie Smith, Analysts, Minnesota Department of Adm stration. Interviews with Juan Huey-Ray, Washington State Office of Minority Enterprises. Interview witl� Gladys Daniels, National League of Cities � 27 �✓- �i � ,.%-= • SOURCES, contlnued Interview with Michael Johnson, State of Maryland Surety Bond Guaranty Program. Interview with Cl�arles Summers, Director, Small Business Development Program, Baltimore, MD Interviews with Dennis Loots, Vice President, Construction Finance and Drew Gesell, Account Executive, Underwriting, Alexander and Alexander, Inc., Minneapolis, MN Interview with Gerald Noldin, Senior Underwriting Officer in Charge of Surety, Saint Paul Companies, Saint Paul, MN Interviews with sltaff of the City of Minneapolis Women's/Minority Business Enterprise program Memos, reports, other miscellaneous documents form the City of Saint Paul, 1976 to present • � 28 7�'Z�� APPENDIX A: 1989 Legal Opinion • • 29 �� .- z�z - . gS-,.��. CITY OF SAINT PAUL d 4� 7� �; � .�, OFFICE OF THE CITY ATTORNEY ��u�iw� .; a� uu iu u ^� • .,,. _ EDWARD P. STARR, CITY ATTORNEY `<<,,, ...; ��_ �,�,,,�. 647 City Hall, Saint Paul, Minnesota 5510� GEORGE LATIMER 612-298-512� MAYOR February 22 , 1989 Ms. Linda J . Camp Purchasing SyStems Manager Room 233 City Hall St. Paul , Mn. 55102 Dear Ms. Camp: This is 1n response ta your letter of January 26, 1989, addressed to the City A�torney and relating to the recent United States Supreme Court opinion of Citv of Richmond v. s J . A. Croson Co. , (dated January � 23, 1989 , and published in 57 United States Law Week 4132 ) . You ask advice of the City Attorney to the following questions: 1 . Wha� is the impact of the Richmond decision upon Chapter 81 (of the bdministrative Code)? Can all or any portion of the ordinance remain in effect? 2. Giv�n the ruling, can the Purchasing Division continue to certify vendors and include "set aside" requirements in specifications for City bids? 3. If it is determined that City can na long�r aperat� our "set aside" plrogram in its current form, what kinds of activities could the City perform to meet its stated goals of assisting business�es owned and controlled by minorities, females or handicap�ed individuals? 4. Any other significant issues for the City raised by the ruling. 1 . What is the imoact of the Richmond decision uoon Chaoter 81 —� (of the ;Administrative Code)? Can all or anv oortion of the • ordinanqe remain in effect? The immediate impact of the Richmond decision is that it casts serious doub� upon the constitutionality of those provisions of the -, ; -, � , ' '<�'.,% ��, `�" ordinance which provide a mandatory percentage set aside of local contracts for companies which are owned by handicapped Fersons, females or minority persons. Other portions of the existing ordinance, such as those provisions pertaining to small businesses, and to the regi5tration of handicapped, female and minority businesses, are not so adversely affected by the decision: Although even those provisions will be required to be examined in the future so as to ensure th�t their purpose will be accomplished. A summary �f the factual setting in the Richmonrl case as we�ll as the Court's dec�sion will explain the above statements. In 1983 the City of Richmond adopted by ordinance a "Minarity Business Utilization Plan" . This Pl�n provided that cantractors daing business with the � City must subcontract at least 30� of the work to one or mcre minority businesses. Minority business was defined as one which was 51� or more owned or cqntrolled by minority members, and minority members were defined as constituting B1acL;s, Oriental , Spanish speaking, Indians, Eskimos or Aleut. Nc geographical limits were placed on wl�ere the minority members could reside or be located. The ordinance stated that it was a "remedial plan" to promote wider participation by minorities in tl�e construction of public projects. The Plan had a 5- year life, and �t the time of the Court challenge, was in its fifth year. The Plan � provided a system wherein waivers could be granted upon a showing �hat the contractor had made every feasible attempt to comply and that qualified minority businesses were either not � available or weMe unwilling to participate in the contract. The 2 �� z� � Richmond Plan v�as patterned after one previously adopted by Congress and which was u�pheld by the United States Supreme Court in a challenge brought alleging violation of the Due Process Clause of the 5th Amendment to the United States Ccnstitution. � Following the adoption of this Plan, the City of ftichmond had advertized for improvements to its jail , including the provision of stainless stee� urinals. Croson Company was the low bidder for the contract, and because it could not obtain subcontract bids from minority businQsses, had applied for a waiver. Subsequent to the bid opening Croson did obtain a bid from a minority subcontractor for the supply of the �arinals, but because of the fact that the subcontractar' s cost for a performance bond would increase its total � costs, Croson �sked the City to either waive the set, a�ide or increase the contract �r�ice in an amount to cover the extra bond costs. The waiver was denied, and the City chose instead to re-advertise for new bids. Croson commenced this action in Federal District Ccurt for the purpos2 of reqwiring the City of Richmond to award the contract t� it as the lowest �esponsible bidder, and the action was based on 42 U.S.C. section 1983 (as a violation of its Constitutional rights ) . The case was tried in District Court, and the ordinance was upheld based upon the previous decision in Fullilove v. Klutznick. Croson appealed the d�cision to the Circuit Court of Appeals, which affirmed � � In Full � love v. Klutznick, 448 U.S. 4�3 ( 1980 ) , the Court upheld � a congressionral program requiring that 10X of certain federal construction g�-ants be awarded to minority contractors. 3 �'1�r �� • the District Ceurt (Croson I ) .2 Upon appeal to the Supreme Court, the decision of th�e Appeals Court was vacated and sent or remanded back for further re iew. 3 The Court of Appeals reconsidered its previous decision, and then found that the Richmond Plan violated the 14th Amendment to t;he United States Constitution, the Equal Protection of the Laws Clauae.4 It was this decisian of the Court af Appeals which was just affirmed by the United States Supreme Court on January 23 , 1989. Justice Cp'Connor issued the opinion for the majority of the Court. In the opinion, she reviewed the facts and the decision of the Court of Appeals. The opinion made a distinction between acts af Cangress and �ctions on the part of the state or city , holding that � Congress is given specific power by the 14th Amendment t� take action ta prevent di�crimination, while the stat2s are prohibited from taking any actions wlnich would deprive citizens of their rights. It is that distinction wlnich Justice 0'Connor relies upon to distinguish the Federal 10% s�t aside program which the Supreme Court upheld in Fullilove v. C�lutznicE: from the Richmond pragram. Discrimination on the part of the state, based upon race, will be examined by the Courts using what is called the "strict scrutiny test" . The first part of the test will require a d�termination whether the city "has demonstrated �a compelling governmental interest which would justify 2 Croson, I , 779 F. 2d 181 ( 1985 ) . 3 J . A. �roson Co. v. Richmcnd, 478 Lf. W. 1016 ( 1936 ) . � ° J . A. �Croson Co. v. Richmond, 822 F. 2d 1355 ( 1987 ) known as Croson II . , 4 �'�- �� th� Plan" . If there is a factual basis to support a finding that there exists such a compelling governmental interest, the second part of the test is to determine whether the means chasen by the City was "narrowly tailored to achieve the government interest" ; that is whether the legislation chosen had the remedial effect of correcting prior discrinDination. The approach taken by the Court was to acknowledge that a city could discrir�inate based on race if the purpose for the discrimination was to remedy a past practice. This practice could have taken on one of two d i ffer^ent forms: The C i ty of Ri chmond cou 1 d have i n the past discriminated against minority businesses in the award made by it of contracts; or� the City could be a "passive participant" in a system of � racially exclusion practiced by the local construction industry. However the Court pointed out that such remedial legislatian must be intended to cure a local problem caused by discrimination. In 1983 when the City of Richmond conducted public hearings on the proposed� Plan, testimony was submitted showing that 50% of the City's population was Black and only . 67% of the city's prime construction contracts had been awarded to minority businesses during the previous 5-year period. 8even people spoke at these hearings, with two in Ifavar and five opposed. The statements made consisted of generalized �omments. The Courts determined that there had been no direct evideince of race discrimination on the part of the City in its letting of Gontracts nor was there any direct evidence that the City's prime contralctors had discriminated against minority own2d � subcontractdrs. The Court's opinion also pointed out that the Plan 5 �� -�2 �- • was not narrowl'y tailored to accomplish the remedial purpose because 30� was an arbitrary figure not related to the numbzr of minority businesses in �he City of Richmond nor to any other relevant number. Justice O'Connor's opinion does provide other alternative means available to cities and states which would nat discriminate on the basis of race. In the opinion, she states as follows: "Nothing we say today precludes a state or lacal entity from taki ng acti on to recti fy the effects of i denti f i ed discrimin�tion within its jurisdiction. Ifi tha city of Richmond Ihad evidence before it that non-minority contracto�s were systematically excluding minority businesse� from subcontracting opportunities it could take action to end the discriminatory exclusion. Where there is a significant statistical disparity between the number of qualified minority contractors willing and able ta perform a particular service and the number of such contractors actually engaged by the locality or the locality's prime contractors, an inference of discriminatory exclusion could . arise. *** Under such circumstances, the city could act ta dismantle the closed business system by taking appropriate measures against those who discriminate on the basis of race or other illegitimate criteria. ***In the extreme case, some form of narrowly tailored racial preference might be necessary to break down patterns of deliberate exclusion. **** "Even in the abs�nce of evidence of discrimination, the city has at its disposal a whole array of race-neutral devices to increase the accessibility af city contracting apportunities to small entrepreneurs of all races. Simplification of bidding procedures, relaxation af bonding requirements, and training and financial aid far disadvantaged entrepreneurs of all ra�ces would open the public contracting market to all those whq have suffered the effects of past societal discrimination or neglect.***The city may also act to prohibitldiscrimination in the provision of credit or bonding k�y local suppliers and banks. " Chapter $1 of the Saint Paul Administrative Cade contains many of the same elem�nts found in the Richmond ordinance. Section 81 .03 � provides for � 20� set aside of the city's annual funds far the 6 c'C�- zG'Z • purchase of godds and/or services, including construction work, with one-fourth of �hat amount to be award�d directly or indirectly to businesses own�d by racial minarities. Section 81 .01 sets forth the intent of the ordinance as support of the policy of "enhancing the viability of tMe various commercial entities through temporary ai� and support to tho�e persons and entities identified herein by facilitating their participating as vendors to the city in its purchase of goqds and serrices. " Thi� statement of intent does nat identify the p�rpose as being remedial of past discrimination to minorities, women or handicapped persons, although the percentage set aside in �ectiqn 81 .03 is directed ta those groups. Based on the decision in Richmond vs . .f . ^,. Crosan C�. thz � percentage set aside program for minorities must be su�porteci by evidence af prior discrimination either cn the part of the City or by non-minority g�neral contractors if the ordinance is to be sustained as constituting a "remedial type of regulation" . This evidence is not contained in tMe Administrative Code, and unless research now should establish such , a factual basis, then it is our opinian that the Saint Paul mandatary set aside contained in section 81 .03, as it applies ta minorities, wowld not be sustained in a court challenge as violating the equal prot�ction clause of the United States Constitution . Even though the RicMmond opinion does not make reference to absolute preference to female or handicapped contractors, it is our apinior� that the same '"strict scrutiny test" applied by the Court would alsa be applied in �uch a case. � 7 I `7 � ` L� �. � �t" <-��, � Therefore the Saint Paul set aside program of a percentage of contracts to females and handicapped persons would also be subject to the same infirmjties as existed in the City of Richmond Plan. Other provisions of our ordinance appear not to be adversel;� affected by the Richmond opinion. Mandatory set asid2 programs established by Congress and which mandate the City's performan�e are not affected by this decision and are s�ill valid. Alsa the Croson opinion does not rule out non-race relat2d assistance to contractors, and does not pr�hibit set aside programs for small businesses (without restrictians as to race, sex or handicap) . 2. Given; the rulina, can the Purchasin4 Division continue to certifv,�vendors and include "set aside" reauirements in soecifications for Citv bids? • It is our bpinion that the Croson opinion permits the City of Saint Paul to identify minority, female, handicapped and small businesses, although the ordinance should be amended to reflect the concerns expressed above, and that set aside requirements fcr other than small busir�esses should not b� included in specifications for City bids (with� the exceptian for set-aside requirements contained in Federally funded prograrris, as required �y Congressional legislation) . Congressianal pragrams under which the City receives funding still require a set aside program, and the information obtained by your office co�lld be used to aid in the implementation of those programs. Set aside programs far small businesses are not prohibited by the Croson opinion, and in fact are encouraged sa long as they are � not restricted to businesses owned by minorities. 8 �'�_�,2- � In addit�on to the above, maintaining of information regarding the number of small businesses owned or controlled by minorities, females or handicapped persons is relevant for future documentation in the event assertions are made that discriminatory practices are occurring in the City of Saint Paul . The type of information which would be relevant would relate to the qualifications of the business to perform the contracting type of work, the number of such businesses located or aVailable to perform such work in the city, and any information relatirg ta the minority businesses being mistr-eated by non-minority 'construction contractors. Justice 0'Connor's opinion can be relied upon by the City to su�port the yegality of obtaining this type of information. In har • opinion , she states as follows: "In thi� case, the city does not even know how many MBE' s in the rel�vant market are qualified to undertake prime or subcontt�acting work in public construction projects. Compare Ohio Contractors Assn. v. Keip, 713 F. 2d, at 171 ( relying on percentage of minority businesses in the State compare�l to percentage of state purchasing contracts awarded to minority firms in upholding set-aside) . Nor does the city kn�w what percentage of total city construction dollars minorit}� firms now receive as subcontractors on prime contracts let by the city. *** "To a large extent, the set-aside of subcontracting dollars seems to rest on the unsu{�ported assumption that white prime contrac!tors simply will not hire minority firms.*** V�ithout any infArmation on minority participation in subcontracting, it is qiuite simply impossible to evaluate overall minority representation in the city's construction expenditures. " 3. If; it is determined that Citv can no lonaer oqerate our "set as�ide" pro4ram in its current form. what kinds of activit�ies could the Citv perform to meet its stated qoals • of assi!stina businesses owned and controlled bv minorities, females� or handicaaoed individuals? 9 1v-zz� � Some activities that the city can perfarm would be to restructure its ordinance so as to provide non-discriminatory restrictions to the program. This could include a set-aside program for all small businesses without restriction as to race, sex or handicap. Also, as stated in the roson apinion, "simplification of bidding procedures, relaxation of bonding requirements, and training and financial aid for disadvantaged entrepreneurs of all races" can be �provided by the city.5 4. Anv �ther sianificant issues for the Citv raised bv the rulin4. ' The most �ignificant issues raised by the Croson opinion have been addressed ' above. The City of Saint Paul will have to re-examine . its policies arhd goals in this regard, and enact legislation that will be consistent v�ith the Supreme Court' s new rulings. W2 are aware that some people will want to seek federal legislation so as ta meet the Court's objections to the local programs, and the City could participate in that endeavor. In addition local contractors and associations c�uld be enc�uraged to assist the City in the distribution o� construction contracts tc those businesses previcusly � 5 Citv of; Richmond v. J . a. Crason Co. , at 57 LW �t143. 10 �or�� • "deprived of tMe opportunity to develop and maintain a competitive positian in th� economy because of social or econamic disadvantage" .6 Y s tru A P. STARR City Attarne • � OME J . GA ' Assistant City Attorney cc: Mayor Councilmembers • � 6 Minn. Stat. �471 .345 , subd. 8 definition af "socially and economically disadvantaged person' . 11 ��_�� z • � APPENDIX B: Survey Materials • � 30 • • �� U �.�✓�.c�-' � CTTY OF SAINT PAUL TARGETED BUSINESS (SET-ASIDE) PROGRAM QUESTIONNAIRE • • JULY, 1989 This questioninaire is intended to help the City of Saint Paul determine the cunent effectiveness of its Targetad Business (Set-Aside) Program. Your thorough and candid answers will help us identify issues concerning the program and gather ideas for improvements. Please take some time to fill this out. Be as specific as possible in your answers; the more you tell us, the mbre effectively we can adjust the program. Please type o�write legt'bly. Thank you for your cooperation. � : : : : * : : : * * : : : * : : : 1. Your primary business's service or product 2. Number of years you have been in business 3. Zip cpde of your main business office 4. When did you first register in the program? 5. How �nany total years have you been registered in the Targeted Business (Set-Aside) . Progr�am? . � 6. Pleas� check all the categories in which you have been certified in the past: . • Small Minority-owned Woman-owned Handicapped-owned � 7. How did you first hear about the program? Targeted Business Newsletter � Contractor City Project Manager ' Construction Newsletter Minority Business Opportunity Clearinghouse � City Buyer Recruited by City Other 8. Why'�did you decide to be certified and what did you expect? (Check all that apply.) To work on a contract which had already been awarded To learn of and participate in future City contracts To network with other small businesses For technical and business assistance Referrals to other, private contracts � Other • 9. Hav� your expectations been met? Why or why not? Targeted Business Survey Page 2 ' � 10. What has been the result of your participation in the program? (Check all that apply.) Awarded City contract Yes No Won contract(s) on private project(s) Yes No Networked with other businesses Yes No Received technical and business assistance Yes No Other Yes No 11. Please give us more information about your involvement in City contracts. How many contracts have you bid on? Over what period of time? How many contracts have you een awarded: as the prime or sole contractor as a subcontractor Over what period of time? What is the average value o a contract? In the past two years, what percentage of your annual business has come from City contracts? 12. Why do you think you were or were not successful in getting contracts? � 13. What has been your experience with the program in Saint Paul as compared with set- aside programs in other communities? 14. Do you feel the Targeted Business Program has helped you? If so, please e�lain. Be � specific in your description. 15. In your opinion, what has worked with the program, and why? 16. In your opinion, what has not worked with the program, and why? • �'�-�� Tazgeted Busfness Survey Page 3 S17. Should businesses be limited in their participation in the program to a certain number of years or a certain number or value of contracts? Why or why not? What criteria should be us�d to determine when a business should "graduate": number of years, number of contr�cts, value of contracts, other? 18. If the;following information sessions were available, which ones would you be likely to attend? (Check all that apply.) How to do business with the City Financial management Tax planning and preparation Estimating and bidding How to write a business plan Other � 19. Which of the services the Targeted Business Program cunently offers have you used, which have been useful, and which will you use in the future? (Check all that apply.) Used Useful Will Use Refe�ence Guide On- ar et newletter Staff'assistance • . Targgted Business Directory Otheu . � 20. What suggestions do you have for improving these services? 21. Whait other services would be helpful to you to do business with the City? 22. Wha�t should we do to improve the program? 23. Any other comments on the program? , • Thank you �or your time and comments. We will print the results of the survey in the winter On-Target newsletter. �� , �� Results of a Survey Conducted With Businesses Certified S in the City of Saint Paul's Targeted Business (Set-Aside) Program July, 1989 PROFILE OF BjUSINESSES - Of 413 businesses sent surveys, 186 responded. Detail of � respondents is a�tached. 1. Primary Busin�ess' service or product - Survey Responses Total Certi�ed Businesses Building, Construction Services 71 38% 99 24% Suppliers 40 22 111 27 Miscellaneous Services 39 21 84 20 Building-Relate� Services 27 15 70 17 Professional Ser�ices 7 4 49 12 Did Not Identify 5 3 TOTAL 189* 413 * Total is greater than 186 due to companies identifying multiple services or products. 2. Number of ye�rs in business - 4. First registered in program - • < 1 - 2 1% (see number five for tally of number of 1 - 4 - 33 1�8 years in program) 5 - 9 - 54 2l9 10 - 14 - 29 1i6 15 - 19 - 25 13 20 > - 42 �3 3. Zip Code of rtlain business of�ce - 5. Number of years registered in the Targeted Business Program - SSlxx - 84 45% 554xx - 5� 31 < 1 - 21 1% 55(h�� - 2� 12 1 - 4 - 99 53 553� - 1'� 9 5 - 9 - SO 27 Other - 6 3 10 - 14 - 10 5 6. All categories business has been certified as in the past - Responses Total Certified Businesses Small 146 78% 393 93% Women-Owned 69 37 123 29 Minority-Ownedl 52 28 111 26 Handicapped-O�ivned 7 4 8 2 The total is greaiter than 100% due to the fact that businesses can be certified in more than one category. • 7v - zz y- 7. How progra� was first heard about - i • Contractor i 46 25% On-Target N�wsletter 42* 23 Other (agenc�es, referrals, walk-ins, newspaper) 31 17 Construction'Bid News 22 12 Buyer � 21 11 Minority BusPness Opportunity Clearinghouse 19 10 Recruited by�City 15 8 Project Manager 14 8 * T'his respon�e is suspect because On-Tareet has been published only one year, and it was identified as thle contact point by many businesses who have been in the program two years or more. Further, the newsletter is only distributed to businesses akeady in the program. 8. Reason for deciding to be certified and what business expected - To learn of future City contracts 153 82% To work on a contract akeady awarded 30 16 For referrals to other, private contracts 39 21 To network �vith other businesses 31 17 For technicall assistance 17 9 Other (build track record, pick up work) 5 3 9. Were eacpectations being met - 57, or 31%, indicated their e�ectations had been met. 87, or 47%, reported that their • expectations had not been met. 10. Results of participation in the program - Yes No Awarded a� City contract 84 45% 79 42% Won a pri�yate contract 28 15 88 47 Networked with businesses 29 16 83 45 Received tiechnical assistance 12 6 90 48 Other (became sub, supplier) 2 1 11. Informatimn regarding business' involvement on City Projects - A. Numb�r of contracts bid on - B. Number of contracts awarded to business as prime or sole 0 41 22% contractor - 1 - 4 52 28 5 - 9 27 15 0 66 35% 10 - 14 16 9 1 - 4 38 20 15 - 19 4 2 5 - 9 8 4 20 > 31 17 10 - 14 3 2 15 - 19 1 1 TOTAL 171 92% 20 > 2 1 TOTAL 118 63% • i �� -, .. �,. .�% � �� ' � • 11. Information zegarding business' involvement on City Projects - Continued - C. Number af contracts awarded D. Bid Time Period - to business as a sub-contract- or - 1 - 4 Yr - 75 40% 5 - 9 Yr - 32 17 0 54 29% 10 - 14 Yr - 5 3 1 - 4 34 18 15 - 19Yr - 1 1 5 - 9 4 2 20 > Yr - 3 2 10 - 14 5 3 15 - 19 0 0 20 > 5 3 TOTAL 102 55% E. Average value of contracts received - < $1,000 1 1% $1,000 - $9,�99 26 14 $10,000 - $2�4,999 23 12 • $25,000 - $49,999 10 5 $50,000 - $?�4,999 8 4 $75,000 - $919,999 1 1 $100,000 > 7 4 TOTAL 76 41% 47% of respondents answering this questions were awarded contracts of less than $15,000 value; 53% were awa�ded contracts in excess of$15,000. Contracts for less than $15,000 may be awarded throu�h phone or written quotes. Contracts for $15,000 and above must be awarded through an advertised bid process. 79% of respondents answering this question were awarded contracts less than $50,000 in value. F. Percent�ge of annual income coming from city contracts in the past two years - 0 46 25% 1 - 9% 37 20 10 - 24% 20 11 25 - 49% 4 2 -- 50 - 74% 0 0 75%> 2 1 TOTAL 109 � �� z � � 12. Why business was or was not successful in receiving contracts - aReason Success$ul Res�onses Reason not successful Responses Low Bid 22 10% Not low bid 36 19% Expertise, reput�tion 7 Didn't learn of work 18 12 Quota needed 3 Service not used by City 14 Specialty �eld 3 Too small for job 7 Buyer "set in ways" 7 Lack of bonding 6 No link with prime, buyer 7 No pressure to use TBs 3 Lack of experience 2 Procedures: No time to prepare bid 2 City charges for plans 1 Estimate too low for small bus. 13. Experience in Saint Paul's Program as compared to Set-Aside programs in other communities - Favorable 22 12% Unfavorable 22 12 Similar 25 13 No Basis fior Comparison 51 27 Minneapolis, PIrInDOT, Hennepin County, the state, and the Metropolitan Airports Commission • were identified as having better programs. More aggressive recruitment, training and monitoring ef�orts were cited. 14. Has the program helped business - 60, or 32%, responded that the program had benefitted them. Re�spondents noted that the program made them eligible for contracts, that it made them aware of contracts and contractors and that they were able to network with other companie�. Other benefits identified were the opportunity to prove a company's capibility and the fact that the process kept out the larger firms. 52, or 28�0, responded that the program had not benefitted them. Several respondents noted that the program seemed geared toward larger firms and that there were not enough projects in their field, particularly professional services. 15. What has worked with the program - Gives small contractor opportunity 13 Forces contractors to hire SEDs 12 Limits th� pool of qualified bidders 4 Having specific goals 3 Constructaon Bid News 3 On-Taree�'t 3 Low bid 3 Respond�nts indicated that the existence of a set-aside requirement was positive. Many felt they wer� able to gain contracts due specifically to the program. • �l�' ZZ� • 16. What has no� worked with the program - Not enough �nformation on available work 15 Lack of commitment to program 9 Low bid 8 ("Why do paperwork if low bid wins?") Abuse, fraud and non-compliance 6 Lack of busitiess skills on staff 5 Not enough �contact with businesses 5 Monitoring qf companies, contractors, sites S Procedures Lack of time to bid on closed specs 3 Amount af time necessary to get paid 3 Program l;acks goals, direction 3 17. Should busir�esses be limited in their participation in the program to a certain number of years, or a �ertain number or value of contracts - 57, or 31%, responded that the program should have a threshhold after which a business should not be eligible. Of the 57, 15, or 26%, felt th�t businesses should be ineligible after a certain number of years; 29, or 51%, felt that a campany's size and/or profit should determine eligibility; 3, or 5%, responded that the valu�e of contracts should be the criterion; and 7, or 12%, felt that the limit should be the number of contracts received. Several indicated that graduating from the program should be a goal of participating businesses. 63 businesses, or 35%, responded that the program should be open to any qualified targeted business. • 18. If the following Information Sessions were available - which ones would be attended - How To Do Business With the City 123 66% Financial Mranagement 36 19 Tax Planning and Preparation 20 11 Estimating �nd Bidding 69 37 Preparing at�d Business Plan 40 22 Other (infotmation specific to my field) 3 2 19. Program services currently offered that business has used, those found useful and those which will be used in the future - Used Useful Will Use Resource Directory 19 19 22 On-Tareet 69 42 33 Staff Assistance 20 20 28 Targeted �usiness Directory 29 28 31 • /� :�. <_i /. T'he last four (#�0-24) questions -- Suggestions for improving current services, other services that would be helpful, suggested program improvements, and other comments about the • program -- were,not filled out discretely by respondents. Answers therefore are being reported by category, rath�r than by question. Procedural Improvements Reduce paperv�ork associated with program Streamline and speed payment schedule Provide easier access to specs and provide greater information on specs Expand lead time on closed bids to allow for more time to prepare bid Improve contr�ct management, supervision Remove bondi�g requirements on projects under $200,000 Expand contra�t opportunities to include housing projects and professional service contracts Improve communication between businesses and project managers, inspectors Communication Survey participants regularly Provide more information about program offerings Improve infor�ation about available work quarterly list of projects annual sedninar on the kinds and anticipated values of City contracts list more than just advertised bids provide a "hot line" for questions about contracts, both pending and awarded Continue On- ar et newsletter . Programmatic Check credentuals of businesses annually; include on and off-site inspections Use staff who'know business Break jobs down into smaller pieces so small companies can bid on them Work more closely with client businesses, include training and business development assistance Survey participants regularly Hold workshops Spend more tiine counseling each business Work to expa�d pool of certified businesses used; don't keep using same ones Provide more information about available businesses to large contractors Look at MnDOT, Minneapolis, Hennepin County, Metropolitan Airports Commission programs for ideas KEY FINDINGS The most commpn concern reported is that businesses are not aware of available work and have not been contacted by the City. It is evident that participating businesses do not have accurate information about City buying procedures. Many businesses seemed to believe that registering with the City would guarantee them work and that they would not need to service the City in the same mann�r they would any private company. Businesses report that they expect advertised bids �rom the City, when in fact the bulk of purchases are handled through phone quotes or unadv�ertised bids. Respondents also lack information about what commodities the City purchases, when contracts � are bid on speci�ic commodities and who the appropriate buyer for a certain commodity is. Participants wanted increased contact with staff and buyers and ways to meet prime contractors to whom they might submit a subcontract bid. � ��,� � � Procedural issuies were ident�ed frequently. These included complaints that the time between � the date the bid was advertised and the date the actual bid was due was not sufficient for them to participate; the amount of time and paperwork required to get paid; improved enforcement. Several respondents noted that the amount of paperwork associated with the Targeted Business Program was npt worth the cost given how few the benefits were. (These comments may be from businesseS certified before the change in documentation required, instituted in March, 1989, which ha� significantly reduced the amount of paperwork.) However, ther� were several comments about operating costs, which participants say are not suf�ciently tak�n into account. Given that the City accepts only the lowest responsible bids, many certified'businesses cannot compete because of the higher costs of doing business associated with small businesses. Along these lines, respondents urged that larger projects be broken into s�aller pieces so small companies could bid on the work. The program �ppears not to adequately serve professional service providers, suppliers and manufacturers of products. There was littl�e or no difference in the responses between minorities and women, in terms of how they felt he program had treated them and in what they identified for improvements. The needs of all re�sponding businesses appear to transcend race and gender. Overall, however, the satisfaction ra�ing was higher with small businesses than with either women- or minority-owned firms. • � i ;�; � � � s �. ' Council File # - . ' Ordinance # • Green Sheet # � ORDINANCE CITI�' OF SAINT PAUL, MINNESOTA ) • ' �:;_ ,-';�:,{�•,� '?' <''�"r`,%, Presented By ' Referred I Committee: Date � An ordinance amen�ing Chapter 81 of the Saint Paul Administrative Code pertaining to purchasing from set aside businjesses. The Council of the City of Saint Paul Does Ordain: I Section 1 That Chapter 81 of!the Saint Paul Administrative Code is hereby amended in its entirety to read as •follows: Chapter 81. Targeted Vendor Development Program Section 81.01. Dec�aration of Policy. The council of the City of Saint Paul, pursuant to the authority granted it by virtu� of the Uniform Municipal Contracting Law does hereby support the policy of enhancing the viability of the various commercial entities through temporary aid and support to those persons and entitie� identified herein by facilitating their participation as vendors to the City in its purchase of goods �nd services. Sec. 81.02. Statemlent of Purpose and Findi.ngs. The City of Saint Paul has undertaken an extensive study of the needs pf certain groups of businesses and has evaluated past City efforts to support them. It is the finding of �the City that, a) Having a strong laind varied community of persons and businesses enhances the City's fiscal strength, augments employr�ent opportunities for citizens, and fosters the overall health of the Saint Paul community. , b) There is a publi interest in using public resources to help certain vendors who have been targeted by the City to beco e viable actors in the local marketplace. These targeted vendors include those who are newly emergin , small, and economically disadvantaged. •c) The City has a dlemonstrated and continuing commitment to providing equal access to City programs for individuals anc� businesses. [Draft wi�th amendments as of March 28, 1990] I �� -zz� d) There is a public pu{r�pose to be served in procuring goods and services from a wide range of vendors and that the Public piiocurement process is one appropriate mechanism that can be used to support those v�ndors who ha�e been targeted by the City as candidates for assistance. •e) The City has a lon� and successful track record of supporting certain targeted vendors through the public procurement pxocess, however additional vendors need assistance and there are needs that remain unmet. (� There is a public �nterest to be served by such programs as this in that there is a promotion of businesses owned by �emale, minority or handicapped businesses that have historically been under- represented in city puk'chasing. Sec. 81.03. Definitionjs. For purposes of this chapter, the following words and phrases shall have the meanings set forth in �this section, except where the context clearly indicates that a different meaning is intended. Economicall disa I ta ed small business means a business enti based in Minnesota that has been Y � g tY in existence for one 'year that has been deprived of the opportunity to develop and maintain a competitive position �n the economy because of economic conditions and that (a) is not a mature business; (b) is not an affiliate or subsidiary of a business dominant in its field of operation; c) is not a non-stocking retaile� or wholesaler, a manufacturer's representative, a franchise or a business where the owner is owner or part owner of another similar business; and (d) is not a business which grossed more than $1,000,OOOi in the previous fiscal year or had employees who worked more than a total of 45,000 employee hou�s in the previous fiscal year. A business is economically disadvantaged if: (1) the owner lacks a�dequate external support necessary to operate a competitive business enterprise as evidenced by the di�minished ability to secure long-term or working capital financing, equipment, raw •material, or supplier trade credit; bonding and insurance; or if the business has not captured a proportionate share af the market for its goods or services; or (2) the business filed�,its first annual federal and state income tax returns which reflected its operation as a business within'the preceding five years or will file its first annual return which reflects its operation as a busine�ss within the next 12 months. Eligible goods and se�rvices means those items annually determined by the purchasing division to be available from multip1le sources and not governed by any special requirements that dictate the source or manner in which they are procured. Goods and services �ieans materials, supplies, equipment, trade, technical, or professional services, construction and dev�lopment projects. Mature business me�ns one that has attained the average or close to average performance for a company of its age arid size as compared with state and national norms, has a demonstrated record of receiving contracts, olr has a demonstrated record of receiving working or long term capital, supplier credit, bonds or insu�ance. I - Targeted vendor mea�s an economically disadvantaged small business. A targeted vendor may include, but not be limited to, �emale,minority or handicapped owned businesses,but such businesses must meet all other definitions �et forth in section 81.03. • [Draft with'� amendments as of March 28, 1990] 2 I `�p-Z �� Sec. 81.04. Goals for �'articipation. (a) The overall goal of the program shall be to provide temporary support and technical assistance to •targeted vendors so tlhey may achieve a level of maturity and become viable actors in the local marketplace without becoming dependent upon the program for their long term success. (b) It is the goal of thie City to award approximately 25% of the funds appropriated each fiscal year for the purchase of eli�gible goods and services to registered targeted vendors. (c) The purchasing d�vision shall establish bid specifications and purchasing decisions necessary to accomplish these targe�ted vendor goals. Sec. 81.05. Program N�ame, Scope, and Ad.mi.nistration. (a) The program of �roviding temporary support and technical assistance to targeted vendors shall be known hereinafter as the Targeted Vendor Development Program. (b) The purchasi division shall have the responsibility for the ongoing development and administration of the�rogram. The Division shall also manage any other similar vendor programs for Ramsey County and ojther users of the purchasing services as may be reasonably agreed upon among the parties. ' (c) The purchasing d�vision shall annually undertake a range of activities to meet the needs of those vendors registered in e Program. These activities sha11 include but not be limited to consulting with targeted vendors, pro�ding information about purchasing procedures, identifying bidding opportunities and targeted vendors who may qualify to participate, and consulting with City departments on future •projects where targeteki vendors may be used. The purchasing division shall also meet at least quarterly with representatives of other business assistance programs operated by the city to coordinate activities and shall refer targetsd vendors to those programs for information and technical assistance. (d) After initial reg�stration in the program, the purchasing division may, in consultation with a targeted vendor, form1ulate a vendor development plan to serve as a guide for the vendor in moving toward achieving mature business status. Performance against the plan may be used by the purchasing division in evaluating '�vvhether the targeted vendor should be permitted to continue in the program. (e) The purchasing d�vision shall take affirmative steps to disseminate information about the program to potential applicant�, including female, minority or handicapped owned economically disadvantaged small businesses, and{ use recruiting methods that encourage a wide range of eligible vendors to participate in the pro�ram. (� The purchasing di�ision is authorized to develop and administer a performance bond fund program to provide performande bonds for qualified targeted vendors as part of the overall Program. Funds for this bond program m�y be received through provisions in City subsidized development projects, fees, or through grants and donations from private, govemmental, and non-profit sources. Sec. 81.06. Applicatiora to Qualify as a Targeted Vendor. Vendors seeking to do business with the City as targeted vendors hall notify the purchasing division of their intent. Applications establishing eligibility for the pro�ram shall be reviewed and an applicant interview conducted by the purchasing division prior to becoming eligible to submit bids as a targeted vendor. • [Draft with ', amendments as of March 28, 1990] 3 �� Sec. 81.07. Eligibility� (a) Applicants meetin� all requirements of a targeted vendor may be registered in the Program for one •(1) year. Program pakticipants may be allowed to renew their registrations annually. (b) Applicants who ate certified as economically disadvantaged small businesses in other jurisdictions may participate in tJhe targeted vendor development program without proceeding through the certi�cation process if they can demonstrate that the program guidelines under which they were certified are materially similar to those used by the Purchasing Division. Proof to that effect from the certifying agency will be required prior to acceptance. The Purchasing Division has the right to screen any applicant through its standard procedures regardless of certification status in other jurisdictions. (c) The purchasing d�vision may refuse to approve an original or renewal application for participation as a targeted vendor�}pon the grounds of misrepresentation of material facts, fraud, deceit or bad faith. The purchasing division may also withdraw its acceptance of any application at any time on the basis of ineligibility, a chainge in the composition of a targeted vendor which does not conform to the definitions herein or lias achieved mature business status. Any rejection or withdrawal may be appealed to the Director of Fi�ance and Management Services, who shall conduct an investigation and make a final determination about the eligibility of the vendor. (d) The purchasing division shall review each program participant's record at the time of renewal and may refuse renewal Q1) upon a finding that the participant has matured sufficiently so that ongoing technical support is np longer needed, (2)eligibility was obtained by misrepresentation of material facts, by fraud, by deceit ot by bad faith, (3) non-performance on a City contract, or by lack of evidence of good faith efforts to �,dvance the business to mature business status. The purchasing division may use number of City contr�cts awarded, and participation in contracts from other jurisdictions as a basis for •granting renewal in xhe Program. (e) In the event th�t a business is not eligible for registration into the Program but is a bona fide female, minority, or handicapped owned business as defined by federal law, that business may be registered to partici�ate in City projects involving federal funds where the sponsoring federal agency has requirements for women, minority, or handicapped business participation. The purchasing division shall have the autho�ity to gather such information from applicants as may be necessary to determine the nature and exter�t of business ovcmership to comply with the applicable federal statutes, rules, or regulations. When i� is determined that an applicant does not meet the requirements of the Program but qualifies for participation in federal projects, the applicant shall be given a "limited registration" in the Program. (� All vendors reg�istered as a "set-aside business" or "small business" under the provisions of the previous chapter 81, at the time of the effective date of this ordinance, shall be grand-fathered in the Program for a perio�i of up to 12 months from the effective date and may apply for renewal provided that the vendor meats the eligibility requirements of this chapter. Sec. 81.08. Method of Award. _ (a) In accordance i with the provisions of Minnesota Statutes 471.345 the purchasing division may, whenever it deems i� feasible, solicit bids that require the lowest responsible bidder to subcontract a portion or percenta�e of work to a vendor registered in the Program or may solicit bids from among only vendors registered with the Targeted Vendor Program. •(b) When deemedi necessary to achieve the goals for participation, as provided for in section 81.04, the purchasing divisXon may award a contract to a registered targeted vendor provided that the price [Draft with amendments as of March 28, 1990] 4 �� -� •� �; � � �. shall not exceed by 5%b the purchasing division's estimated price for the goods and services if they were purchased on,the open market and not under the provisions of this program. Sec. 81.09. Monitoring and Reporting. • (a) The purchasing di1vision is authorized to verify that the targeted vendors specified for City projects, whether as contractorS or subcontractors, are the vendors performing the work. Such verification may be accomplished by o�.-site inspections, requesting written information, or such other mechanisms that may be reasonable. (b) Each targeted ve�dor shall, upon request of the purchasing division, permit access during normal business hours to the business work site, record, and files as needed to determine conformance to targeted vendor program requirements. (c) The purchasing diivision shall take steps annually to review the overall performance of the program against the stated go ls and shall take steps to modify program activities as necessary to accomplish such goals. As part o�the annual review process, the purchasing division shall collect information from Program participants, among others. The Division shall also gather information about the race, gender and physical status o� targeted vendors to assist the city in determining whether discrimination has occuned in the publi contracting process and to permit the city to comply with federal participation requirements that m apply to city projects. (d) The purchasing ivision shall annually prepare a report on the overall operation of the program. The report shall incl�ide, but not be limited to, information on the types and numbers of businesses certified or recertifi�d in the program; the number and dollar value of contracts awarded to economically disadva�taged businesses who are small, or owned by women, minorities, or handicapped individuals; the perce�ntage of participation of targeted vendors in city projects, reasons for not using • targeted vendors in c�ty projects; outreach and recruiting activities, and an overall assessment of the program. It shall be �ransmitted the Mayor and City Council and shall be available for inspection by Program participants'and the general public. Sec. 81.10. Discrimin�ation. In the event that a vendor feels that he or she has been discriminated against in the award bf a City contract, the vendor shall have the right to file a grievance with the City Human Rights Depa�tment and/or the State Human Rights Department. The procedures to be used shall be those specif�ed in Chapter 183 of the Saint Paul Legislative Code and Chapter 363 of the Minnesota Statutes. Sec. 81.11. Rules,Re�ulations,and Forms. The director of the department of finance and management services shall promul�ate such rules, regulations and forms as may be needed to carry out the duties and responsibilities s�t forth herein. � Sec. 81.12. Advisory Committee. There is hereby created a Targeted Vendor Advisory Committee consisting of seven members appointed by the Mayor and approved by the City Council. Members shall be selected from current program participants, persons knowledgeable in the fields of finance, law, small business devel�pment and women and minority business development, and other metropolitan business developmen�t programs. The committee shall hold meetings at such times as agreed upon by the members. The �committee sha11 monitor the progress and impact of the program and make recommendations to �the Purchasing Division in the certifying and servicing of targeted vendors. Sec. 81.13. Penalty f r fraud, misrepresentation. It shall be a misdemeanor for any person to furnish •or to provide fraudu�ent or false information for the purpose of gaining eligibility to or participation in the targeted vendmr development program, and upon conviction the person shall be subject to the penalties set forth ini, section 1.05 of this code. [Draft withl amendments as of March 28, 1990] $ i �C�� ZZ2� � Section 2 This ordinance shall t�ake effect and be in force thirty days from and after its passage, approval and publication. Section; 81.08 (b) of the Legislative Code, as amended by this ordinance, shall automatically temunaite one year after the effective date of this ordinance unless the City Council shall elect to re-enact!,this provision prior to that date. �I � �I • ' - � Yeas Navs Absent Requuested by De��ent of: uno � swi z �_ nc c �ee �_ une �— i son � BY= Adopted by Counci]�: Date � Form App ed City Attorn y Adoption Certifiec� by Council Secretary g�,. 9 - , A�prav by Ma r for Submission to APproved by Mayor� Date ��. BY. I By: [Draft wit�a amendments as of March 29, 1990] I ��9d -�� Revised ActivityT Performance Plan for Activity 11254 • On„oine Proera�n Objectives 1. Manage the vendor assistance programs for the City and Ramsey County in conjunction with Ramsey Coumty Affirmative Action staff in accordance with the policies adopted by the City Council and �he Ramsey County Board. � 2. Monitor changes in laws and policies and assist City and Ramsey County departments in complying with all applicable federal, state, and local set aside and vendor assistance programs. 3. Maintain records of use of vendors who meet City and Ramsey Counry vendor assistance requirements and provide quarterly reports summarizing key statistics to City and County officials. 4. Publish a qu�rterly newsletter and provide other information and assistance to Program participants. 1990 Project O�jectives 1. Recruit and �ertify at least 15 new targeted vendors per quarter, including those who have been referred by k2amsey County staff. 2. Consult with staff in at least 4 City and Ramsey County departments or offices each quarter on areas for potential use of targeted vendors. • 3. Provide staf# support to the Targeted Vendor Development Advisory Committee throughout 1990. 4. Conduct at least one information session each quarter for targeted vendors on how to do business with the City and Ramsey County. 5. Produce written materials explaining how to do business with the City and Ramsey County and the types and amounts of commodities purchased by the end of the first quarter. 6. By June 1, revise application forms and internal operating procedures to be consistent with the new Program policies adopted by the City and Ramsey County elected officials. 7. Conduct at least two round table discussions with representatives of local business assistance programs and other resource people by the end of the third quarter to gain input on Program operations. 8. Survey all v�ndors certified in the program for suggestions and feedback on Program operations by October 1. 9. Publish an updated directory of vendors registered in the Program by October 1 for distribution to prime co�ntractors, City and Ramsey County Department staff. • �'o �-z� z Revised Activity Performance Plan for Activity 11254, continued • New Program I�dicators Promised 1990 Actual Information Sessions Held 4 Number of Partucipants 30 Revised Activity Performance Plan for Activity 31158 (Purchasing's Vendor Performance Bonds) On o�in�Progr�m Objectives and 1990 Project Objectives 1. Implement a� performance bond program for vendors certified in the City's Targeted Business Program usimg the $100,000 contribution from the Canadian development company, BCED to expand use qf such vendors in City projects. 2. Operate the�erformance bond program in such a way that the City's exposure does not exceed $250,000 at �ny given time during the trial period. � 3. Evaluate tha performance bond program by October 1 and make any needed improvements by December 31. ($5,000 in consulting fees budgeted in 11254 to support implementation and evaluation.) Revised Pro�r�m Indicators Number of Contracts Supported 1990 Promised $ 2,000 to $ 5,000 15 $ 5,000 to $10,000 10 $10,000 to $15,000 5 Value of Con�racts Supported $190,000 • �'d --Zz-- < � �OOO O M O O O O N 000 O O ti P'O ��O � O� . i0 � L � .- � t a u ..+ c. �� O � • � �tp OaONO O � O �~ P E � N O a+ t � g o � � W �•Y �- L C C W W tA E(\� � y O A tJ �A 0000 O O O � ~ ~ U a�0 7 C T �> C! P++ � ' C U O •V •� �< d u � -o < a m w D �m ^ 7 �r.... O G w M O N iOOOO O O O � �` y � mg � o d � � c E . ~ inc �u • � j � > C < �� C N� U C� � O•t0 ��+ d d W M u L � N O �n p j� a� m �o tn � C�� N H �� d � � u z a+ q1 O� C�Q E Cg� O v � L W E H E ++ �0 N 7 L a o� u c�. 'p °' a�i w a �0 � O C y , L E) ` W C � 7 N W 7 4! G N t� QI ti a� N 1- L a 2 � � N C� � t m.�. , g � � o � � y � �� '. Q 4! 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OFFICE OF THE MAYOR No: ADMINISTRATIVE ORDER Date: ADMINISTRATIVE ORDER, That pursuant to Chapter 81 of the Administrative Code,whereby the Purchasing Division is authorized tq establish and manage a performance bond program for businesses certified in the City's Set�Aside (Targeted Business) program, the Mayor hereby directs the Rurchasing Division to begin implementing the program developed by the ad hoc Bond Program committee consisting of representatives of the Accounting Division, the Treasury Division, the Risk Management �nd Employee Benefits Division, the City Attorney's Office, and the Purchasing Division on Nc�vember 27, 1989, and be it FURT ER ORDERED, that the Purchasing Division shall review the program after six months of op ration and shall make modifications and changes to the system as necessary to assure that th full purpose and intent of the Bond Program is being carried out. � APPROVED AS TO FORM Assistant City Attoroey Department Head � Administrative Assistant to Mayor i �v -zz� � SAMPLE INTENT TO AWARD LETTER � � Date: I Hi-Buck Decorators � Trump Plaza ! Dreamland, MN RE: BID NO. $$$$ � GOLD LAME WALLPAPER INSTALLATION - CITY HALL/COURTHOUSE This is to inform you 0f the intent to award BID No. $$$$ to furnish labor, materiais, equipment and services necessary or incident�l to installing gold lame wallpaper in the City Hall/Courthouse. Before the contract c�n be awarded, the documents checked below must be completed and returned in the envelope provided within 10 days, except for the Human Rights documentation. ONLY THE ATTACHED DOCUMENTS ARE A�CEPTABLE. Work may not begin until all signed documents have been returned, are approved, and you reiceive a signed contract. Performance �ond with both contractor and surety signatures countersigned and notarized. If you are a b smess certified in the Targeted Business (Set Aside) Program and the contract is between $2,00� and $15,000, you may be eligible to use the City of Saint PauPs Bond Program in lie�1 of a performance bond. See the enclosed forms for information. • Insurance cer�ificate with coverage equal to or exceeding the limits shown in the bid specifications, including Worl�ers' Compensation. Vendor registration form Targeted Business documentation Materials related to the City's Human Rights requirement are being mailed under separate cover. These must be returned within 5 davs. If you have any questions regarding this documentation, please call the Purchasing Office at 298-4225 and state your questions clearly. Purchasing staff will respond as quickly as possible. Sincerely, William E. Peter cc: Herb Holzschuh NOTE: Should you be unable to complete all documents within 10 days, please indicate below the date the papers will be r�turned. Sign and return this notice in the envelope provided before the 10 working days elapse and your option expires. PAPERS WILL BE �ELIVERED BY: • DATE SI NATURE DAY PHONE NUMBER '' ��-�c,� � � Date: Januaryl8, 1990 To: City De�artment and Office Directors City Department Accounting Staff From: Linda .�. Camp, Purchasing Systems Manager Jackie Hicks, Business Assistance Program Supervisor RE: NEW PER�ORMANCE BOND PROGRAM We are pleasad to announce that the Purchasing Division is about to inaugurate a new performance bond program to help vendors registered in the City's Targeted Business (Set Aside) Prograrm. Because the program will require that some new procedures be followed on certain City cdntracts, we ask that you review the information below with any of the staff in your departm�nt who have responsibility for overseeing contracts. Background • Minnesota St�te law currently requires vendors to post a performance bond for any City contract having a value of $2,000 or more where labor and materials or labor only is involved. Past experien�ce has shown that this requirement represents a hardship for some vendors, particularly those registered in the City's Targeted Business Program. To address this problem, staff in the Purchasing Office have developed a new performance bond program that makes use of a new bond collateral fund. Established as a result of a contribution from BCE Development Properties, Inc., the bond program will allow vendors to pay the City � fee in lieu of a standard performance bond or other secured credit. Because of restriction� on the use of the BCED contribution, the program is open only to businesses certified with the City of Saint Paul Targeted Business Program and is available only for City contracts. How the Program Works Qualified vendors who have been awarded a contract having a value of between $2,000 and $15,000 involving labor and materials or labor alone may apply to use the Performance Bond Program. If�he vendor is accepted, the Purchasing Office will calculate a fee based on the contract value that the vendor can pay instead of posting a performance bond. A portion of the Bond Fund is then set aside to "cover" the contract. If the contractor defaults, the Bond Fund will co�ver any claims related to the contract. The fee will be deposited in the collateral fund to allow� for the continuation and expansion of the program. � �� At present, the Bond Fund balance is $100,000. It is estimated that this will enable the City to cover $250,Op0 of contracts without incurring risk to itself. Once the $250,000 limit is • reached, no neviv applications will be accepted until there is coverage available. The City will only draw upon the fund in the event of poor performance, contract breach or termination, or non-payment of suppliers and contractors. Businesses not eligible for the Bond Program will be required to post a performance bond or other secured credit in the usual manner. Department Re$ponsibilities When a contract is awarded and the vendor elects to use the Performance Bond Program, Purchasing Office staff will send a copy of the Bond Program Participation form to the department acaountant. The accountant should retain the form until the project is completed. At�that time the accountant should fill out the space on the form indicating completion, att�ch a copy of the tetter or pay voucher transmitting final payment or release of retainage (whichever comes later) and send it to the Purchasing Office. It is important for this form to be returned since it will indicate that the dollars set aside to cover the contract are no longer rieeded and are available to cover other contracts. In the event of,contract problems or a non-performing vendor, department staff should notify Targeted Business staff in the Purchasing Office. They will work with the vendor and the department to �ee if the problem can be resolved. It may be necessary to notify the City Attorney's Offi�e, as well, to review options for handling the situation. Should it become necessary to t rminate the contract, the vendor will not be eligible to participate in the Bond Program for fu ure City contracts. Copies of any letters or other documents generated in the course of add ssing any problem or terminating the contract should also be filed with the Targeted Busi ess staff. Program Review • The program will be operated in its current form for six months, and will be evaluated at that time. We will be soliciting comments from appropriate department staff to help us streamline procedures and solve problems. If you have any questions, please contact Jackie Hicks at 292-7518. � �'o�� _ � CITY OF SAINT PAUL PERFORMANCE BOND PROGRAM Because of the difficufties er�countered by small businesses in securing performance bonds, the City of Saint Paul has inaugurated a special performance bond p�ogram. Startup funding was provided by a contribution from BCE Development Properties, Inc. Due to •restrictions on the contributi�n,the bond program is open onlv to businesses certified in the Cit�s Targeted Business (Set Aside) Program and is available only for City contracts. The program is being operated on a trial basis through the City of Saint Paul Purchasing Office, and will be evaluated at the end of June, 1990. HOW THE PROGRAM WOf�KS On contracts between $2,OO10 and$15,000 involving labor and materials or labor alone, certified targeted businesses may pay a fee to the Ciry in lieu of a perform�nce bond or other secured credit. This fee will be prorated to the value of the contract. When the City agrees to accept the aRernate form of bonding, a portion of the Bond Program Fund is set aside to'cover"the contract. At the conclusion of the corrtract,ihe doltars set aside in the Bond Fund are then available to cover another contract. During the trial period, it is estimated that the Bond Fund will be able to support about$250,000 of contracts without risk to the City. A fee composed of two separate charges supports the Bond Program. The first charge is a bond fee, calculated as a percentage of the contract value. The se�ond portion is an administrative charge of$100 to cover the costs of administering the Bond Program. All fees will be applied to the bond reserve fund to increase the dollars available to cover future contracts and thus permit the eventual expansion of the Program. Further information on the applicable fees appears below. It will only be possible to sWpport a limited number of contracts with the Bond Fund at any given time. Therefore, as contracts are awarded,the Purchasing Division will notify vendors of the instances when the Bond Program is available. The overall goal of the Program is to serve the gr�atest number of businesses possible so preference will be given to first-time applicants. Vendors who have failed t�perFortn satisfactorily on a contrad will be denied the opportuniry to use the Bond Program fior fi�ture contracts. i SCHEDULE OF FEES � Contracts involving labor ahd materials or labor alone will be assessed$9.28 per$1,000 of contract or portion thereof. To determine the fee owed, Purchasing $taff will multiply the amount of the contract by.00928. •In addition to the above, each contract will require payment of a$100 administrative fee. (Example: On a$38,00 contract, a business would owe a$35.26 bond fee plus an administrative charge of$100 or a total of$13526.) All charges will be calculabed by Purchasing staff and transmitted to the business at the time of the contract award. Please note that a cashie�'s check,cerdfied check, money order,or cash are the only acceptable forms of paymerrt. APPLICATION INFORMATION At the time of each contraict award, qualified businesses will be sent application materials. If you receive these materials and wish to participate, please compldte the Bond Program application form and return with the corred form of payment to the Purchasing Division, 233 City Hall, 15 W. Kellogg Blvd., Saint Paul, MN 55102. Payment should be made to the CITY OF SAINT PAUL and the contract reference number marked on the check or money order. Make sure other required contract documents are included as well. For quicker processing of the application mark'Performance Bond Program' on the outside of the envelope. FURTHER INFORMATIOhI If you have any question�about the Performance Bond Program or the Targeted Business Program (Set Aside), call the Targeted Business Office at 292-75'16 between 9:00 a.m. and 4:00 p.m. • i � v-zzG- APpUCATION FOR THE CIN OF SAINT PAUL PERFORMANCE BOND PROGRAM Please provide al� of the infoFination requested below. Type or print legibly. The correct amount to be paid in lieu of the bond has been computed below and �reference number assigned. Make out a certified check, bank cashier's check, cash or money order to the CITY OF SAINT PAUL in the proper amourrt. Please make sure the reference number is on the check, money order or other form of payment. Return this application, proper paymerrt, and all other necessary contract documents in the envelope provided. Mark on .the front of the envelope AT1fN: PURCHASING OFFICE BOND PROGRAM. COMPANY INFORMATION CERTIF/CATION/NFORMATION ompany Name ate of Most Recent ertification ompany Address Product or ervice ompany Provides iry, tate, Zip ompan�s Annual ross Revenues Contact Person ay Phone Owner Status (male, female, minority,white, handicapped). For statistical purposes only. CONTRACT INFORMATION Reference (Requisition) Numiber Contract Amount City Department Work to be Performed BOND PROGRAM FEES The overall program fee isimade up of two different charges: a bond fee and fee to cover administrative costs. The bond fee is calculated by multiplying the contract amount by.00928. The administrative fee is$100 per contract. The total fees owed for the contract listed above are: • Bond Fee: $ Administrative Fee: $ 100.00 Total Payment Due: $ Acceptable forms of paymlent are: cashier's check, certified check, cash, or money order. Put the reference number on the payment. DECLARATION By signin�be/ow, applicant certifies that: a) s/he and/or any currer�t or any previously-owned business is/are not and have never been in bankruptcy or in the hands of a receiver, b) s/he and/or any currerht or previously-owned business is/are not and have never been in default to the City under the terms of any contract (defauft meaning a cor�tractor's failure where the C'ity had to take legal action to obtain remedy or where a bonding company had to make good for the contractor or where the contractor was declared in defauft by the City); and c) the information given aibove is complete and accurate. Providing false or misleading information will be cause for being ineligible for the bond program �nd may be grounds for being dropped from the Targeted Business Program and other legal action as appropriate. �gnature Date B NDIN /N RMAT/ The follow�ng information is being gathered for sta6siica/purposes only to help us evaluate the program. Was private bonding so�ght for this job? Yes No If yes,what was the result, and wh�/? •Reason(s) for applying fpr the Cit�/s bond program i; °- �% � <1��< ./� Saint Paul/Rams�ey County Joint Purchasing Office 233 City Hall • 15 W. Kellogg Bl�rd. Saint Paul, MN 95102 NOTIFICATION OF PERFORMANCE BOND PROGRAM PARTICIPATION Date: To: Department: From: Jackie Hi�ks, Business Assistance Program Supervisor This is to let you know that the Purchasing Office awarded a contract to: for the following project: . Purchase Order'#: The vendor will be participating in the Perforrnance Bond Program for this project. At the conclusiqn of the project, please provide the information requested below and return with this form to me at the address listed above. Thank you for your assistance. Check One Vendor has successfully completed the contract. (Attach lien waivers, copy of final � payment and capy of request for release of retainage, if applicable.) Vendor has not successfully commpleted the contract. (Attach copies of all correspondenc� or other materials that document attempts to resolve problem.) Signature ' Proj ct ontract Manager or Department Accountant Date: Telephone: � � o aaoZ Saint Paul/Ramsey County Targieter�Business P�ngram(Set AsuJe) ]une 1989 The Leg 1 Side of Set-Asides . . . T.B. On the Mark Wher po We Go From Here? xo�an a� M�v� ;g a S�i�,a- scaping�mpany located in Hastings,MN. In January 19�,the Sup e Court de- � �� Established in 19T7,HoHman&McNamara rnnstruction of blic a.The Plan had clared a Richmond,Virginia -Aside pro- a S,year life,and at the time of the Court is certified as a small business with the Tar- gram to be un�nstitutionaL ,again in challenge,was in its fifth year.The Plan pro- g��Business Prngram. February,the Court affirmed a lower Court Dennis McNaatara,president of the com- vided a system whereby waivers rnuld be ruling striking down a simila �rogram in pany, stated that he started the company Michigan.As a result of these ' gs,many ��a�n a sh�ible attem e to rnm 1 r ��"'t°be my own boss."He enpys working localgovernments,including CityofSaint �' � P y outdoors and with his partner, Gary Paul and Ramsey County, now sceing and that qualifle�minority businesses were Hoffman. eithernotavailableorwereunwillingtopar- G Vioe- ident,had started out how their Set-Aside Progr measure up az'Y� PT�� bY under the new legal enviro t. ticipate in the contract. worlcing with his uncle's tree removal com- The Richmond Plan was patberned after Pany, He decided that he wanted to be in Richmond,Va.v.Croson one previously adoptefl by Congess and business for himself because he knew the which was upheld by the United States Su business,he enjoyed it,and he liksd working In 1983 the Ciry of Richm d adopted a P�e Court in a challenge brought alleging outdoors as well.As Gary says,"I don't think "Minority Business Utilizati P1;�n.'°This �olationoftheDueProcessCiauseofthe5th I'd ever change ik" plan provided that mntracto doing busi- Amendment to the United States Gary and Dennis bought the tree removal ness with the City must su ntract at least Constitutian. company Gar�s uncle owned and added 30% of the work to one or ore minority Following the adoption of this Plan,the landscaping to their compan�s services. businesses. No � �rt8 � Ciry of Richmond had advertised for im- Since 1977,Hoffman and McNamara has ge°graP provements to its jail,including the pmvi- gainecl its own nursery and o�nsequently placedonwheretheminority embersmuld sion of stainless steel urinals.Croson Com- �red three more employees. reside or be located.The o inance stated �y Was the low bidder for the contract. �us does not think being a sma11 busi- that it was a remedial pla to promote ��it could not obtain subcontract bids ness causes problems. "I think iYs actually wider participation by m' orities in the beneficial,"says Dennis.He explains that the Continued on page 3 ro�Fany��ore adaptable to change than a A ote from the Editor larger rnmpany.He[eels closer to their em- ployees and is aecure in the fact that he can keep track of everything himself. This edition marks the of the The many positive a�mments we have re- Dennis views the Targeted Business Pm- second year of publication r On Target. ceiv�ed have been infierpreted to mean that gram asverybeneficialtotheirrnm�nyand The purpose of this n etter rnntin�s overall,the newsletteris serving its purpose. other smallbusinesaes.Accordingto Dennis, to be to provide informatio and seive as a We also received some very constructive approximately 6096 of Hoffman and Mo- primarymethodofrnmm cationbetween criticism. The rnmments are appreciated, Namara's business rnmes from the City of the program and targeted inesses. and we'll be doing what we can to improve Saint Paul. They do work with the parlrs Throughquestionnaire ponses,wewere in those areas. planting trees,and doing general landscap- able to get fcedback from our businesses. Forthose ofyou who eommented that you �$�r the City. Thisinformationhas prov tobehelpfulby would like to see the newslet�r "keep on �n ask�how he views the future for letting us know what our dienoe is imer- coming"you will be happy to know that it �CO�PanY��$�d"stable."He feels ested in knowing. �, comfortable with its current size and doesn't Thankyoutoallofyouw ornmpletedthe Due to on-going changes within the pro- f°r�anYradicalgrowthinthene�rfuture. questionnaires. gram,it was decided that staff should rnn- , �nis'advice to young entrepreneurs is It was very enrnuragin to l�rn that the centrate their efforts towards the research �ork hard and watch your ov�head majority of our responden either save the and development for new operations. For closely.Start small;it's easy to over extend newsletter editions for fu une reference or thisreason,therewillbeonlytwoeditionsof Your capital. Always be sure that there is s it on to other readers the newsletter this �r. adequate capital." � y If the last eleven years are any indication We also received many quiries regard- If y�nu have any further rnmments or sug- of the future,Hoffman and McNamara will ing Purchasu►g issues and eTargeted Busi- g�tions, by all means let us know. Your rontinue to graw and prosper. ness Program.The newsl will provide input is very unportant to us.After all,the answers to all of your q tions in future goal is to provide you with the information By S.Judd Luckey issues in the"Did You kn �'rnlumn. you want and nee�l to know. Targeted Business Intern ��?��?�� Did You Know �� Naw that;the C.�1y 3s eetting"sa�all busi- Why�re there so many separate aerHfica- How do those who buy for the City and nesa" =equiremeate ori City bids, what dons to file fof! County,and prime contractors know what happens to those busineases that were buainesses can be used to meet targeted previously certified as minorlty,woman, Because�ch of the agencies are governed business requ#rementa? or handicapped owned and cantrolled? by differing soumes of funding which regu- labe the programs. Furthermore, there are OnceabusinessiscertiHedintotheprogram, Theapplicationsofthesebnsinesseswerere- different de�nitions,and classifications of it is added to our directary of certif'ied busi- viewed to determine if they met the criteria certification.Forexample,somejurisdictions nesses.This directory is available to those as a small business.Ch�ly nine of the busi- may be operating a W/MBfi program,while individuals responsible for meeting require- nesses that had previously been aertified in �hers may certify small businesses.In addi- ments to assist them in finding the firms to one ofthosethree categories did not me�the tion to these factors,�ch agency is currently provide the desired goods and services.We Cit�s requirements as a small business. operatinginadifFerentmannerinlightofthe arecurrentlyupdatingthe+directory.Itshould Therefo these nine are not 'ble to - reoent a�urt rulin .For more information be sent out b the end of the month. � � P� 8S Y ticipateinCityfundedprojEx3swithi+equire- r+egardingthedif[erentprograms,youshouM ments for small business parHcipation,but directly eontact each agency. they will oontinue to be filed for participa- tion on projects including federal funding. All of the other certified busine�es can par- ticipate in City funded projects that include smallb"8"'�s"eq""'en'e�'ts' FROM THE EDITOR How wlll businesses lrnow which bids will . - inclndeminorityandwomenparHdpaHon o If you have any questions you'd for federal�y funded pmjeets vasus amall � �� like answered please send them to: � ��"��''�"� Michelle L Nom requirements fo:city projects2 �j ��,r�� : 233 City Hall-Courthouse The i+equir�ents for partidpation will be Saint Paul,MN 55102 clearly stated inthe specificationsofthatbid. _fhe Ta�gct Bulk Rate Sant Paul/Ramsey Counry Joint Purehasing U.S. Postage 2.33 C,ty xalr-cou�tl�ouse PAID Saint Paul,MN 55102 St.Paul,MN On-Tanert is a publicatio�of the Ta�grted Business Progmm Permit No.1015 Tmg�ed Bu�Sta� Jacquelyn M.Nckr-Business Assistance Pir�gram Supervisar Michelle L.Hom-Business Assistance Specialist Elaine Reiter-Clenk Typist I Prisci/la Wyeth-Management Assistant II Editor-Michel/e L.Hom 4 � ^,, w;,,-�� . _. _ , . .:_ �. _ , ., � ; 5 � ' �'� —�.�� . . . .. . . . . . j . � - . .. . 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Down To Busin � .,� .S�b��tt�n� � �i� T.�a��:� 'Ti��s are aev�at.ra�ys tlac Vendora ra+�ar�e bt�d�oc : Mart�rac�o�an��r�pliar. �P�•�►�Y�0. � �s} the bi�in tha N�'te��mp�quert. contnux tt€geoa�d4��fot ; pur�wni+r�eoeo�!SiS,'000i,it '� ; aopiei t�t't�awrttw�r��ed:�t �te C�r at�t�W. � fann4ll,�bid md adva�d. � � r�to• �� '��c�l'f�a�t�` ; : Tfib artic�e WID go t�,a�t A�t�are�t p�ed anl�b� ` . � ��a�► �= ��►�� a�n�� ycwr un+ier�naing a�t� co� . at�ror anyoue*:rer�bR►. ;� Tot�,�c�t��t : it►tersct mose e,�'ectl�►w+� ; BiQs e+w�i ca�t�e ri�ne i�p�t� vartal!,u�`p�t,�n�it� . � Pui+c�asing Ot�ce. ` � numMx of tRa�e�t� ��►��, _ , 'T�e CuY and Co�n�j► aubmit manaier 1n cwe•�aea�ai �'��g��„ t!�requat far a p�rodua a on s 4��f� sad�tt�l�y��il-�, t�foan. � �� +o�ntain � and�s�, � T!��lak�ta d�e �.� It��k.a��p11b w. �S�P�� ,. ara.' B�i�r r«�i�►�a,��, '• �� . ��f�'; � �A.bid bo,M�'�4�� froam Mi�Ic!�►�I,ms#T�,._ � ; �r and�� tbet tht tcrai amowM ef y�oeT t��sa�r " IA 195�;�o�r.'��r, ' < � t�al�d�be m�to�. SSQ.A�1l. ' Pt►ct�ta��r��e� '' "�� In�e�a af�npt Bid formi ahc+u�i�t�d'in ooe�► ` Arnry.��ti�:��€ r a d�c t 1 t�a m f�ba a btd w�era W�n i�r�ed. An�r �or El�m�j►. = s are lietod�:�s cxc�tion or da►�wic sA�kf beno�d T�:�i4�t��de :� N�ta��ich It�d co a�e1�e bid foc�m it�f[or�lue�ched vrocical.�r i��karr��d ' e�h F�i= shcot of yau ktterL�d. ,; m�r¢�tc€drt p�r,.� � I � Cored�t�d e�n pa�t 3 sui�etriwr�d P�i�i I ; ��.�;� � � ; _ oo�v.,rr�wu�s�e�M� ? �. � Note F�om e��li�r: {� . �� * � ��► : w�to t��c � �Y�c � �: �= �� ilt pt+o!viue waa tha a��:�,�: : �Aia�! �ot�+th�t�rii8 �Il�po�� : �!irt��'_ : " �is�p�b�xtio�ta�the :' ��I�osr�. :�: ; "��t `' � �� Hu�h�er.�gram thu C.igr "�q�C`i Ci��beep po� cro�tad s l�br�lfa��it�#�� , of S�dat F�t�+d tha of - �;ly Jadtie�;jcooe�,ae� ��"�'� .' ; � '�O�b�eai�r�-af tl� it to . tb�r�!i+�:�p�t. T�b�r"�iw��raw�-��t� :: 3 Pe�aride��t � as the �ordar.i�or� t�be e�s Y'�.�,��Zf�u8 ti�' ° � , � = p�7►:mathadt� : �et�e�` aud�at�YO��el�n�nt � -� t60'�'yu�eited�in�re aud oar feo�ic. Pla�e��iAe�e fcr ��oglts�dr�jr�#lli�e�;,�a� ' � Ba� �s Su�-�,�;S�t P'Mtt flts�q �y�rwfar�w�i�a�s�d�. a_ �TA$�� . "�►e4a b+��b�a` � Camq.Jc�t- X�#�J I�,�S . ��.�� „ 4 "�A�n►te�...:` � W+�t;lGe�' . S�det�I�il+i, �•`�� d ; � � ��( � $�pZ, Etf�►A�Df�i;�`��ei�ilM�i1% .' � �i , ��-�o�a,�s a � . �,�,�`�+�« . ,; ��d �a� No� �e Ha►�e�r�af� , "�"�+�F�i�;1�t��;, � � �wt�au�. I ,��ti�&�ss�r�oMr�e ` ��oai��s ai�n�l��i�, �� ,; T.B.os the Mul�" t �a�1t��i'�e'�`e�� '�f'�idt tae s1��4�ti�tp�ed� , 'l�ied��wt l�o�re�. : f� _ �otL!e�'�.�f`� ' • � �b�s��a . . r` _ �� < , , , _, , ;, �; ! � rhz , . , � � _ , A �� .� w . .. . .. , � ..�.•+ , . ,. = .