The Metropolitan Sewer District underutilized businesses owned by racial minorities and women when awarding construction contracts over a five-year period, according to a recently released disparity study.
The study, commissioned by MSD and completed by Oakland-based Mason Tillman Associates, made a series of recommendations to MSD to prevent such disparity in the future, including bid discounts and financial assistance for minority and women-owned business enterprises (M/WBEs).
MSD executive director Tony Parrott stated in a news release that continuing the agency’s tradition of connecting such businesses with contract opportunities “will create not only economic inclusion but an economic boom for area businesses.”
“As a large organization, it is our responsibility to assume leadership to increase supplier diversity with our procurement that will reflect the community in which we live and work,” Parrott stated. “Our capital program will sustain thousands of jobs annually and offer the opportunity for more local businesses to perform work for MSD.”
For the study, the consultant examined data from 2,342 MSD purchase orders for MSD general contractors from 2010 to 2015, totaling more than $660 million, which includes 1,664 construction subcontracts worth $164 million.
The study found that minority- and women-owned businesses, particularly those owned by African Americans and Caucasian women, were underutilized by MSD — a conclusion Mason Tillman Associates reached after comparing the percentage of construction, engineering and services contracts and subcontracts awarded to M/WBEs and the availability of such businesses in the Louisville area.
The consultant also conducted 40 one-on-one interviews and two focus groups with minority and women business owners on barriers to winning contracts through MSD’s Supplier Diversity Program. These anecdotal findings helped shape the study’s recommendations for the agency.
In order to increase their chances of winning a contract, the study recommends a 10 percent bid discount for M/WBEs, with the maximum discount not exceeding $50,000.
In addition to augmenting the staffing, advocacy, training and outreach of MSD’s Supplier Diversity Program, the study recommends leveraging the agency’s banking relationships to provide financial assistance and services to M/WBEs, which could “mitigate the adverse impact” they experience from limited access to capital.
Such recommended financial assistance includes providing offer letters of financial capability to contractors to demonstrate their financial solvency, start-up loan programs for M/WBEs to increase access to capital and large projects, and lines of credit with rates and terms that are “more favorable” than those available in the commercial market.
The study also recommended that MSD’s supplier diversity policy be expanded to include a program for small local businesses located within Jefferson County, regardless of the race and gender of their owner. Citing the fact that more than 40 percent of MSD contracts were awarded to companies outside Louisville, this recommended program would establish a goal of 15 percent of purchase orders being awarded to local businesses with annual revenues below $500,000.
MSD’s current supplier diversity policy is only in place on an interim basis, as its Supplier Diversity Program was temporarily scrapped in 2015 following an Insider Louisville investigation, which found that a minority-owned business was being used as a “pass-through” front for a majority-owned business to win lucrative contracts.
Both businesses were suspended from winning future contracts by the MSD board after an independent audit confirmed much of Insider’s reporting, but in 2016, the board reversed their suspension after the discovery of a letter sent in 2010 by MSD’s supplier diversity administrator that gave “incorrect” clearance to the contractors on their business arrangement.
MSD staff hopes to revise its procurement and supplier diversity policies and provide the board with final recommendations to implement by early next year.
Sheryl Lauder, the spokeswoman for MSD, told Insider that Mason Tillman Associates was paid $646,679 for the study.
Parrott and MSD officials will make a public presentation on the disparity study at 5:30 p.m. Tuesday, July 24, at the St. Stephen Church Family Life Center, 1508 W. Kentucky St.
This story has been updated with the cost of the disparity study.