Attachment Minutes Exhibit A for Regular Meeting held Sep 26, 2017 1:00pm at SEA

Minutes Exhibit A

Minutes Exhibit A
Port Commission Regular Meeting
of September 26, 2017

P —Ol Small BusinessmEInclusi
of Seattle 2016 Small Business
Utilization Report

Overall Small Business Spend
by Type of Procurement Number of small
businesses with which the
514,825,534 664

$2,126,231 Port conducted business
$4,874,141
® Magar Construchon

wu Mega Projects 62.8 Total dollar amount of

wu small Works
Consulting spend to small business
a Goods and Services Million

a Overall
25.3 Percent of small business
spend to total Port spend
Percent
Portion of Total Spend ($247,745,872)
Total dollar spend with
Small Business 17.7
frterprise $62,801,94%/
25.3% SCS firms
- ° Million

Women Ownedpon
Business, FET $13,087,276
5.3%

Disadvantaged Total dollar spend with
Business 15 9 J
Lnterprise 0 $2,804,158
1.2% Minority, Woman and
Million
Snail Contractor Disadvantaged Businesses

7.1%
S- STO,00L000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 $70,000,000

tet g
‘Disparity Study 2017

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SE.
\//4 Department of TransportationWashington State
C: RN COLETTE
HOLT
& ASSOCIATES

Ll. EXECULIVE SUMMAIY
wuccivcrerrnrisrersinsnissnssnisnsesansenssssassseseesssnssssssnssanssnsssnnsssnssnssssnsroses1
A. Study Methodology and Data........cccceueerereeiemesersnsisnseessssrsnesssesnssssessnssssssensesaesssens 1

B. StUdY FindiNgS....ccicseriinimmenininmisnmesnennimisnisnsssssssesssssssssessssss sssssnnssssesesnnssesssonss 1
WSEDOT'S DBE PrOGram
........cceeiieeuineeienreirensieneeaseosresesseeseesssssesssssssssesssssssssssssssssssessns 1
Program OVEIVIEW........c..cceciueuerimiieriiriieeneeeerste tees esseseesaeeaseseasessseseesssssssssesssssns 1
Experiences with WSDOT'S DBE Program ..........cccocevveeuirireeeeineseeseseeeeeeereressesssssssesssssssean 3
Utilization, Availability and Disparity Analyses for WSDOT
........ooveveeeeeeeeeeeeeoeeseeeeon 5
Analysis of Economy-Wide Race and Gender Disparities in WSDOT's Market
.......... 11
Qualitative Evidence of Race and Gender Barriers in WSDOT’s Market
........oooon..... 11
Recommendations for WSDOT'S DBE Program........ceeeeeeeveveeeeeeeeresseeeeeseeeoeeessessens 12

Il. Legal Standards for Disadvantaged Business Enterprise Programs.................. 16

A. Summary of Constitutional Equal Protection Standards..........cc.ecerereeeeesecensane16

B. Elements of Strict Scrutiny
........cccooviennsvrveensnesnsessnneeerrersstesatecasensnnesanenrasnnsanannen18
C. Strict Scrutiny as Applied to the DBE Program........ccouieeceeseseeeesseersesesssssessnssense22

D. Narrowly Tailoring WSDOT'’s Disadvantaged Business Enterprise Programs in
Conformance With Western States
..........eecemeiscsmerssnssmessessssssssresssssssssssssssssees28
lll. Washington Department of Transportation's Disadvantaged Business
Enterprise Program.......ciccnicinineeinessnssiesmssssesssesssssssssssessmessssersosssssessssssssesaes34
A. Overview of WSDOT'’s Disadvantaged Business Enterprise Program..............34

B. Experiences with WSDOT’S DBE Program ........c...ccceeecereeesssssssssssnsssnsssssseessons40
Contract Size and COMPIEXIY
.........ccceevueriiririntinieeeeeeeeereeeeseeseeeseesseesseventeen40
PAYMENESLocurietree eressees esses esessaessenestonesstsmenesseseenon40
Obtaining WSDOT WOTK ....uvvverierirrerieiiiecreeeeereiecsisieseeessesseeeseessssssesesssesssssessenssans42
Experience and Financial REQUIrEMENLS ..........ccovueuvireerireeeeeeriseeeeeeeseseeeeeeeesses 43
DBE Certification ProCeSS
.......ccccviiieiriniiiieieeeeiirceeecrtssteeeeeeeeseseesasseesessessesssesssssnns46
Technical Assistance and SUPPOrIVE SErVICES
.........cveeeveereeeeeereeeereseeeeeeeesenses,47
SMall BUSINESS SEt-aSIAES
...coueiuieruriieeieeiieeietecece ceeeeesraeeseeeesessseseestossesssssesees51
Mentor-Protége Relationships ........cccceeiiiriieniiieiriinieiseessesereeseseessssesssessesssssssssssess 51
Meeting DBE Contract GOals...........cceveeecriniiuieiicsieiesesereeeescessseersstessessessessssnns53
C. CONCIUSION
...cucuiiiesincenstssisnseisnasessnreressessssnes sassansssenssasersssssenssssasasenssnssranssssnsorsesense62
IV. UTILIZATION, AVAILABILITY AND DISPARITY ANALYSES FOR WSDOT........63

Contract Data SOUICES........ccciminnimriiensnnnisrnninrsrssssninissssesassssssessarssesssnrassnsarsssssassnssnans63

A. WSDOT’s Product and Geographic Markets
..........c.cceeeceeeeresnreressnessnssensssrsssnsnson63
1. WSDOT's Unconstrained Product Markets............ccoecveveeeeereerensooes
esos,64
2. WSDOT's Geographic Market
.........ococeemeeeieiriieiiiseierceeeeseeeseeeeeeeeseessssesesnanns 69
B. WSDOT’s Utilization of DBES
.......cccccovruememnserscnmienesarsenssnsssnsrssssnsessssesssenrssssssessons 71
1. WSDOT’s Utilization of DBEs on Federal-Aid Contracts
..........ccuveveeveeeveensnan, 71
2. WSDOT's Utilization of DBEs on State-Funded ContractS.........eocuveevveveeuvennnn. 81

C. Availability of DBES in WSDOT’S MarKets ....c.cccivceeecrernssecneesssnsssnnssssanessssessesmmeens 86
1. Methodological FrameworK..........ccueieeiiccciinceecscs eeeeeeeeresresreesses esos86

2. Estimation of DBE Availability in WSDOT’S Markets..........ceovveeririeeirecesreresennnes 89

D. Analysis of Race and Gender Disparities in WSDOT’s Utilization of DBEs ....100

V. Analyses of Disparities in WSDOT’S ECONOMY.....ccccuremeeremrsneesenssnmrarssnssaseressaeses 103

INtrOdUCHION cuceeiiceiiriiieerrr ncnscnenssene cssacsaecnaneesensissesnonsrsnereassnssnsnesannsssnarnsnen103

A. Disparate Treatment in the Marketplace: Evidence from the Census Bureau's
2011 - 2015 American CoOmMMUNILY SUIVEY
.....ccccucerrernereenssssnessasressessassossssnesssssesseses 106
1. Construction and Construction-Related Services Industries Combined in
WESHINGLONcccsrecessesceseassenenessensenneseseenssens 107
a. Business FOrMation RAES
..........coouvuciieeriieriieiereeerietieeeesees seesreresesessesserenns 107
b. Differences in Wages and Salary INCOMES
........ccoveeeeeeeeeeeeeeeereeeseeseeeeeesesssesereneseen 109
c. Differences in BUSINESS EAMINGS.........ccoouevvieriereeneeeeeeeeeeereeseeeeeressessenssesseesressoseesees 110
A. CONCIUSION
ceteriseerste eresests sceaseseeeeeseeaten tessenesrereans 111
2. The Construction Industryin Washington. reenter arnt arene sesre near se eranen 111
a. BUSINESS FOrmMation RAES
.......ccccvieeriiieeeeiecieeeteeestentesesetseesenesesesessessnaneon111
b. Differencesin Wage and Salary INCOMES
........c.coriirieiiieieeeeeeeeeeeeieeeeeeereseessensnas 112
c. Differences in BUSINESS EaAMINGS.......cccvivviveeieeeieee
eereeeetesetesseeesseesessessssressesseness 113
0. CONCIUSION.....cvieeirieteetererste
ses se eset etcetera eerste sees sessenesseressessaresseesessssssns 114
3. The Construction-Related Services Industry in Washington.............cceeeeveenene 114
a. Business FOrMation RES .........cccveviiiiriinieinieee
cieseeeeeeseeeeseesese a sessassessn 114
b. Differences in BUSINESS E@IMINGS........ccveveeeeeeieeiiiceeeeeeeeeeseeestessees
esssieneesessesssnsssseenes 116
C. CONCIUSION «courrier cere crite eerste eter beset ets bsts e sesame stent
aeeetees ares atesssessessesesenses 116
VI. QUALITATIVE EVIDENCE OF RACE AND GENDER BARRIERS IN WSDOT’s
MARKET....cuciiiiimnissinincinsanisnmsimmmssrsmssssrsssssssrsnsnsssansssssnssnasses snnsassssssssnsssasssnsssnnrenns 117

A. Business OWNer INtervieWs
..........cccvemvrrreriercssinssmsssrassssseessssssersassasnsssssessassansnese 118
Stereotypes, Discriminatory Attitudes and Negative Perceptions of Competence..... 118
Exclusion from Industry NEWOTKS .........cccverieerierrierieneeccerrcecrcrissree eeesesense nens 123
Obtaining Work on Public Sector Construction and Consulting Projects on An Equal
Basis123

B. Anecdotal SUIVEY .......cciiccieiniiininisiieiinsmissssseensenemiensisssrsrasssasssssnssssasseessasesssanes 126

C. CONCIUSION...iiiiicrnrrannisserrarrersasrsssrrsssrsnsesinarrentssssaseesnsasnanseessenssnsssssenssansesaneanse127

Vil. RECOMMENDATIONS FOR WSDOT’s DISADVANTAGED BUSINESS
ENTERPRISE PROGRAM........cccctrtiisenninrrrnressnnesnnsisisessssssasesasssssssssssssssssessssesansenee 128

A. Augment Race- and Gender-Neutral Measures.........cceerseeereonesscessnessosersonsesses 128
Increase Certification Outreach and EXPertiSe.........ccceevvevieieeeeiieeeesieeisesseessssrnsensnns 128
Monitor Prompt Payment of SUBCONIractors
............ceeeeeveeeiveieneeeceessereeeeseeeeeesssenens 129
Increase Contract “Unbundling”..........cceoeeevineeniirieceeeceeecseeereese esesssreeenes 129
Ensure Bidder Non-Discrimination and Fairly Priced Subcontractor Quotations
....... 130
Review Insurance and Experience ReqUIrEMENLS
.........cceeeeeeevvrereeeesrerrssesseesesrneesses 130
Review DBE Policies for Consulting Contracts
.........cccvvvveirrierinieeereerereeceeeessrensssnns 130
Provide Information and Training to Bidders Regarding Program Compliance
......... 131
Enhance the Small Business Enterprise element
...........cccccvvuevvierincnneevieerieeeenne 131
Continue and Enhance Supportive Services and Business Development Programs 132

Develop a Bonding and Financing Program for SBES ..........cceevevreeeerereesreeeresesnensens 133
Adopt a DBE Mentor-Prot€geé Program ..........ccceeeieineeeeesinniisererseesesesessseesssssnssneees 133
Provide Information and Training to WSDOT Staff and Local Subrecipients Regarding
Program COMPUANCE..........c.cvvieeriiieientiereircnesrernreseesecressaessessareeresesseesesseneansesners 135
INCrease Program RESOUICES.......cicucveeeereerrisiereiiisieresescae
sreeseessssseeseessessessessessns 135
B. Continue to Implement a Narrowly Tailored DBE Program.........ccceeeereecnennn 135
Use the Study to Set the Narrowly Tailored Triennial DBE Goal.......cccovvvevveveveennnn. 136
Use the Study to Set DBE Contract GOalS...........ccevvveeveeereeeeeeereeireesresssereessesssessns 136

C. Develop Performance Measures for Program SUCCESS .......c.ceeccerersmrseeeseeserans 137
Appendix A: Further Explanation of the Multiple Regression Analysis................ 139
Appendix B: Further Explanation of the Probit Regression Analysis
.......c.eeeu..... 140
Appendix C: Significance Levels ........cccrererreiisrnsnsesenesenssssenssssssessnssessnesessssrsnes 141

|. Executive Summary
Colette Holt & Associates (CHA) was retained by the Washington State Department of
Transportation ("WSDOT") to perform a study in conformance with 49 C.F.R Part 26 to
determine its utilization of disadvantaged, minority- and women-Owned Business
Enterprises (‘DBEs"), the availability of DBEs in its market area, any disparities between
its utilization and DBE availability, and evaluate whether the use of race-conscious
measures is supported by the results of this analysis. We were also tasked with making
recommendations for the DBE program. We analyzed contract data for federal fiscal
years (“FFYs") 2012 through 2015.
A. Study Methodology and Data
The methodology for this study embodies the constitutional principles of City of
Richmond v. Croson, Adarand V. Pena, Ninth Circuit Court of Appeals case law, U.S.
Department of Transportation (“USDOT") guidance, and best practices for designing
race- and gender-conscious and small business contracting programs. The CHA
approach has been specifically upheld by the federal courts. It is also the approach
developed by Ms. Holt for the National Academy of Sciences that is now the
recommended standard for designing legally defensible disparity studies.

We determined the Department's utilization of DBEs, and the availability of DBEs in
WSDOT's geographic and industry market area. We then compared utilization to
availability to calculate disparity ratios between those two measures. We further
analyzed disparities in the wider economy, where affirmative action is rarely practiced, to
evaluate whether barriers continue to impede opportunities for minorities and women
when remedial intervention is not imposed. We gathered anecdotal data on DBEs'
experiences with the agency's DBE program. We examined race- and gender-based
barriers throughout the economy through focus groups with business owners and
stakeholders, and interviews with agency staff. We also evaluated WSDOT's DBE
program for its effectiveness and conformance with strict constitutional scrutiny, the DBE
program regulations and national standards for DBE programs.

Based on the results of these extensive analyses, we make recommendations for the
Department's DBE program for federal-aid contracts.
B. Study Findings

WSDOT's DBE Program

Program Overview
As a recipient of US Department of Transportation (“USDOT") funds through the Federal
Highway Administration ("FHWA") and the Federal Transit Administration (“FTA”), the
Department is required as a condition of receipt to implement a DBE program in
compliance with 49 C.F.R. Part 26." The Department administers a DBE Program Plan
based upon the samples and guidance from USDOT. This Plan has been approved by
the relevant modal administrations. As part of the Plan, WSDOT is required to submit a

"48 C.F.R. §§ 26.3 and 26.21.

triennial DBE to each USDOT modal administration. For federal fiscal years (“FFY")
2014 through 2017, WSDOT’s FHWA-approved goal is 11.6 percent. For FTA-funded
contracts, its proposed goal for FFYs 2014- through 2016 was 3.26 percent.
As required by 49 C.F.R. § 26.51, WSDOT sets contract goals to meet
any portion of the
overall DBE goal not projected to be met through race-neutral measures. To set
contract goals, WSDOT evaluates the scopes of work of the project; the estimated
percentage of those scopes; historical evidence of subcontractor utilization on similar
projects, and the availability of ready, willing and able DBEs to perform the type(s) of
subcontractable work (If there are fewer than three certified DBEs for one scope of work,
within a reasonable mobilization distance, that scope is not be considered as DBE
subcontractable work); and the Department's progress towards meeting its overall,
triennial goal.

Detailed Instructions to Bidders based on the standards of 49 C.F.R. Part 26 provide the
requirements for the DBE program as part of the solicitation specifications. Bidders are
required to submit a Disadvantaged Business Enterprise Utilization Certification form
with the bid; failure to do so may cause the bid to be rejected as non-responsive..
Bidders may only count 50 percent of the work sublet as “force account.” 60 percent of
dollars to be paid to Regular Dealers; and only the fees paid to brokers.

WSDOT conducts regular reviews to ensure that DBEs are performing a “commercially
useful function” (“CUF").

WSDOT passes through money from USDOT local agencies (often referred to as
subrecipients in the federal regulation guidance and tips). Subrecipients are required to
either adopt WSDOT's DBE Participation Plan, or develop an equivalent plan.2
Subrecipients must designate their own DBE Liaison Officer responsible to the chief
executive of the agency. The Local Programs Project Development Engineer (“Local
Engineer”) is to review each project to determine if it involves work elements that are
conducive to DBE participation. Once established, local agencies are to follow WSDOT'’s
monitoring and compliance procedures, including on-site reviews to ensure the DBEs
are performing a CUF, and submit monthly reports of the amounts credited as DBE
participation.
The Department has set performance metrics for employees with responsibilities for the
DBE program within the Human Resources Division's’ Performance Management
System.
To address complaints of discrimination under Title VI of the Civil Rights Act of 1964 and
the DBE program regulations, WSDOT publishes External Complaint Procedures.

WSDOT has entered into an Interagency Agreement with the State's Office ofMinority
and Women Business Enterprises (‘"OMWBE") to delegate DBE certification to OMWBE.,

To meet the requirement in § 26.39, Small Business Participation, WSDOT has
established a race-neutral Small Business Program. Race-neutral measures employed
by WSDOT include:
e “Unbundling” contracts to assist small firms to bid as prime contractors.

e Abbreviated procedures to prequalify contractors for contracts under $100,000.

» A Small Works Roster program for contracts under $300,000

2 No local agencies have submitted their
own plans.

» A Small Business Enterprise goal of 10 percent participation by SBEs certified by
OMWBE on federal-funded design-bid-build contracts without DBE contract
goals.
» The Safe Harbor program for small architectural and engineering firms to forgo
the requirement to present audited financials statements.

e Materials to assist firms to navigate WSDOT's business processes.

e A Community Engagement Plan to guide the agency's interactions with
stakeholders about all aspects of its operations.

e Training to employees and contractors on program compliance elements and
procedures.
» Information sharing and outreach activities, including Information on how to do
business with WSDOT and its various divisions.

» Networking events to facilitate relationships between DBEs and prime

. contractors on specific projects.

» The DBE Advisory Group to provide stakeholders with information about the
program, and to provide feedback to WSDOT regarding roles responsibilities and
other issues.

» DBE Supportive Services in conformance with 23 C.F.R. Part 230 and 49 C.F.R.
Part 26, Appendix C, Business Development Programs, including general and
firm specific training and technical assistance to help DBEs to become more
competitive in the heavy highway construction industry.

Experiences with WSDOT's DBE Program
To explore the impacts of the Department's DBE program, we interviewed 202
individuals about their experiences and solicited their suggestions for changes.

Contract size and complexity. Many interviewees mentioned the size and complexity of
WSDOT's projects as major barriers to participation by small firms in any role.
Payment. Complaints about slow payments came from all types of firms. This seemed to
be a universal concern, mostly unrelated to DBE status. However, small firms were more
negatively impacted by delayed payments. Providing forms for small firms to use to
invoice WSDOT was one possible partial solution.
Obtaining WSDOT work: DBEs reported that the program remains necessary for them to
obtain work with WSDOT. However, more monitoring of contract performance was
recommended. Many DBEs believed that prime contractors do as little as possible to
meet goals, and that the Department and local agencies need to be more vigilant about
enforcing requirements. Some DBEs stated they had received support from WSDOT.
Experience and financial requirements: Many small firm owners reported it was difficult
to become prequalified to work on WSDOT jobs. The requirements to have equipment
and staff in place and to have already performed that level of project often made it
impossible for them to compete. These criteria advantage incumbent and large firms.
Many DBEs mentioned insurance requirements much higher than the cost of the job as
a WSDOT-imposed restriction. Another important example is the requirement for audited
financial statements to set rates for consultants. This was described as an
unnecessary

expense for small firms. Even for large sophisticated firms, WSDOT's audit process was
experienced as unduly and unusually burdensome. There was near universal consensus
that while well intentioned, the Safe Harbor program to permit small architectural and
engineering firms to become prequalified for a set time under a predetermined indirect
cost rate does not help DBEs. The rate of 110 percent is too low to be profitable.
Another issue is that consultants cannot mark up the rates for subconsultants, thereby
requiring the prime firm to absorb the costs for training the DBE subconsultant.
DBE certification process: Participants who had sought certification were able to
navigate the system. There was a general understanding that the certification process
needs to be rigorous to ensure program integrity. However, several White women felt
they were held to a higher standard than other applicants. Many DBEs reported a lack of
knowledge of the highway construction industry by the OMWBE certification staff.
Several interviewed, including non-DBEs, suggested more outreach, especially outside
the Seattle area, to broaden the pool of certified firms.

Technical assistance and supportive services: Many DBEs have taken advantage of
WSDOT's numerous outreach and assistance services. There was broad agreement
that new and small firms need help to enter the highway industry and to perform on
Department jobs. Non-DBEs often pointed to lack of business skills as a major issue for
DBES and their ability to use them to meet goals. The DBE program's limits on the
personal net worth of the owner and the size of the applicant firm keep DBEs from
growing and being more competitive. DBEs often lack the systems to do WSDOT work,
resulting in headaches and costs to general contractors. One approach in addition to
technical assistance would be to assist with bonding and financing. Some prime firms
said that DBEs should not receive targeted services because these provide a crutch.

Small business setasides: There was significant support for a race- and gender-neutral
small business setaside to assist DBEs and small firms to work as prime contractors and
consultants.
Mentor-protégé relationships: Several participants supported the idea of a mentor-
protégé program for federal-aid contracts. Some large contractors urged caution about
adopting a mentor-protégé program.
Meeting DBE contract goals: Although it was not always easy, most prime contractors
and consultants reported they were able to meet DBE contract goals. A lack of capacity
to do work was frequently cited by general contractors and prime consultants as a major
issue with the program. Contractors in Eastern Washington repeatedly reported that the
goals on projects in their area are too high. “On call” contracts, where the actual scopes
of work are not fully defined at the time of award, were especially challenging. A large
number of concurrent public projects compounds the problem. Some consulting firms
wanted credit towards meeting DBE goals for the diversity of the staff of their businesses.
Many firms, both DBEs and prime contractors, objected to WSDOT's practice of refusing
to credit DBE participation despite the firm's being certified in that NAICS code, because
of the Department's narrower set of work codes. When bidders cannot meet goals, they
found it difficult to submit documentation of their good faith efforts to do so that will
pass
WSDOT's muster. Change orders can make it difficult to meet goals. That DBE
subcontractors submit higher prices than non-DBEs was a common refrain. Many primes
stated that DBEs often do not want to submit on non-goals jobs. At the same time, DBEs

taking on more work than they can perform creates problems for the general contractor,
often resulting in goals not being met. Many general contractors expressed frustration
that they are prohibited from helping DBEs on an ad hoc basis when a tool is needed or
a piece of equipment breaks down. Performance issues impact not only costs but also
safety. It was difficult to substitute a non-performing DBE. Some general contractors
stated they use good DBEs on non-goals jobs. Non-DBE subcontractors reported having
been passed over in favor of DBEs, despite being lower cost. Some prime firm owners
believed that the program is unnecessary.

Utilization, Availability and Disparity Analyses for WSDOT

Strict constitutional scrutiny, Ninth Circuit case law and the DBE
program regulations
require that a recipient limit its race-based remedial program to firms doing business in
its product and geographic markets. CHA therefore analyzed contract data for federal
fiscal years (“FFYs”") 2012 through 2015 for WSDOT's federal aid and state-funded
contracts for Construction and Construction-Related Services contracts. We received
contract records from WSDOT that contained 1,741 contracts, worth $3,523,164,304.
Because of this large volume of contracts, we created a sample file for our analysis. We
then constructed all the fields necessary for our analysis where they were missing in the
Department's contract records (e.g., industry type; zip codes; NAICS codes of prime
contractors and subcontractors; non-DBE subcontractor information, including payments,
race, gender; etc.). The resulting Final Contract Data File for analysis contained a total
award amount of $2,328,344,423.60, representing 417 contracts to primes; of this
amount, 5,475 associated subcontracts received $983,172,968.90. The Final Contract
Data File was used to determine the geographic and product markets for the analyses,
to estimate the utilization of DBEs on those contracts, and to calculate DBE availability in
WSDOT'’s marketplace.

We analyzed data by federal modal administration funding source, i.e., Federal Highway
Administration (FHWA), the Federal Transit Administration (FTA) and the Federal
Aviation Administration (FAA); and state-funded contracts. This delineation was to assist
the Department with meeting its obligations for goal submission under 49 C.F.R. Part 26,
which requires separate analyses to FHWA- and FTA-funded contracts. We also
analyzed contracts funded solely with state monies, described in Chapter IV.
We first determined the Department's product market for each funding source. Tables A
and B present the NAICS codes, the label for each NAICS code, and the industry
percentage distribution of spending across NAICS codes, for contracts, respectively.
Chapter IV provides tables disaggregated by dollars paid to prime contractors and
dollars paid to subcontractors on contracts with subcontracting opportunities.

Table A: Industry Percentage Distribution of Contracts by Dollars Paid for

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237310
. Highway, Street, and Bridge Construction 50.4%

Electrical Contractors and Other Wiring Installation
238210 Contractors 8.4%o 58.8%o

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NAICS Code Description Contract Total Contract
Dollars Dollars
|
238910 Site Preparation Contractors 6.1% 64.9%

236220 Commercial and Institutional Building Construction 5.8% 70.8%
541330 Engineering Services 5.5% 76.3%
236210 Industrial Building Construction 3.8% 80.0%
237990 Other Heavy and Civil Engineering Construction 3.7% 83.7%
238320 Painting and Wall Covering Contractors 2.9% 86.6%
238990 All Other Specialty Trade Contractors 2.4% 89.0%

238110 Poured Concrete Foundation and Structure Contractors 1.7% 90.7%

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i 5

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CHA cr¥ 3
ofWSDOTdata.

Table B: Industry Percentage Distribution of Contracts by Dollars Paid for
FTA Contracts
re
il§-7 ER 4
[Contract | Total Contract
4LUGS | Dollars! :
336611 Ship Building and Repairing 58.0% 58.0%
237990 Other Heavy and Civil Engineering Construction 18.4% 76.4%

238320 Painting and Wall Covering Contractors 12.0% 88.3%
541330 Engineering Services 6.3% 94.6%

Source: CHA analysis of WSDOT data, |

To determine the relevant geographic market area, we applied the well accepted
standard of identifying the firm locations that account for at least 75 percent of contract
and subcontract dollar paymentsin the contract data file.5 Location was determined by
ZIP code and aggregated into counties as the geographic unit.

3 Agency spending across another 17 NAICS codes comprised
9.3% of all spending.
4 Agency spending
across another 11 NAICS codes comprised 5.4% of all spending.

5 National Disparity Study Guidelines,
p. 49.

Spending in Washington State accounted for 91.8 percent of the Department's total
FHWA-funded spend in its unconstrained product market. Therefore, Washington
constituted the geographic market area from which we drew our availability data for
these contracts. Table C presents data on how the contract dollars were spent across
states.

Table C: Distribution of Contracts in WSDOT’s Product Market for FHWA-
Funded Contracts by State
[iee| EE a
ihI He
Te farahe BT
AaCContract Dollars ErErr| Dollars ER EL IWRN ith ds I NACI
ST.

Source: CHA analysisofWSDOT data.
We performed a similar analysis for FTA-funded contracts. Spending in Washington
State accounted for 64.54 percent of the FTA-funded spend in its unconstrained product
market. Multnomah County, Oregon accounted for 34.4 percent. Therefore, Washington
state and Multnomah County constituted the geographic market area from which we
drew our availability data for these contracts. Table D presents data on how the contract
dollars were spent across states.

Table D: Distribution of Contracts in WSDOT’s Product Market for FTAFunded
Contracts by State
ER M 4Ads CHETaeeeaaabt BS > 5
=
A he,

WA 64.54% 64.54%

OR 35.41% 99.94%

NJ 0.04% 99.98%

OH 0.02% 100.00%

Source: CHA analysis of WSDOT data.

8 Agency spending
across another 15 states comprised 1.9% of all spending.

The next step was to determine the dollar value of WSDOT's utilization of DBEs in these
market areas, as measured by payments to prime firms and associated subcontractors
and disaggregated by race and gender. To fill in the Department's missing records for
payments to all subcontractors, we contacted the prime vendors to describe in detail
their contract and associated subcontracts, including race, gender and dollar amount
paid to date. This was a very lengthy process. We further developed a Master DBE
Directory based upon lists solicited from government agencies and private organizations.
We used the results of this extensive data collection process to assign minority or
woman status to the ownership of each firm in the analysis that was otherwise
unclassified.

Tables E and F present the distribution of contract dollars by all industry sectors by
funding source. Chapter IV provides detailed breakdowns of these results.

Table E: Distribution of FHWA-Funded Contract Dollars
by Race and Gender
acs|Black a ) a
ARWENESET | :No ieoe:oe : {5 Pe
mg:
Taner neh ERA noe
Lats iRRR
236210 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%

236220 0.0% 0.0% 1.7% 13.5% 0.1% 15.3% 84.7% 100.0%

237310 0.0% 0.6% 1.1% 2.8% 7.7% 12.2% 87.8% 100.0%

237990 0.0% 5.3% 0.0% 0.8% 0.1% 6.2% 93.8% 100.0%

238110 0.1% 20.0% 0.0% 3.0% 5.2% 28.3% 71.7% 100.0%

238140 0.0% 0.0% 32.8% 0.0% 0.1% 32.8% 67.2% 100.0%

238210 1.0% 8.6% 0.0% 1.4% 11.7% 22.6% 77.4% 100.0%

238320 0.0% 0.0% 0.1% 0.0% 38.6% 38.7% 61.3% 100.0%

238910 1.4% 1.5% 0.0% 15.1% 10.8% 28.9% 71.1% 100.0%

238990 0.0% 19.2% 0.0% 12.4% 10.3% 41.9% 58.1% 100.0%

484110 0.7% 5.3% 5.7% 5.3% 12.6% 29.5% 70.5% 100.0%

541330 0.1% 1.0% 6.4% 0.7% 1.4% 9.7% 90.3% 100.0%

561730 2.5% 1.0% 23.5% 1.0% 59.8% 87.8% 12.2% 100.0%

561990 100.0%

tea

: a
Source: CHA analysisof WSDOT data,Ye EATEN

Table F: Distribution of FTA-Funded Contract Dollars
by Race and Gender
EE [en |FHA en is: Cc cs
| (NonDBE
237990 0.0% 0. 0. 0.0% 100.0% 100.0%

238210 00% 0.0% 00% 00% 8.6% 8.6% 91.4% 100.0%

238320 00% 10.5% 00% 0.0% 0.0% 105% 89.5% 100.0%

336611 00% 0.0% 00% 00% 0.0% 0.0% 100.0% 100.0%

541330 0.0% 0.0% 0.0% 0.0% 100.0% 100.0%

oo ak4 TIA
Source: CHA analys's of WSDOT data. Sreeal
Using the “custom census” approach to estimating availability and the further
assignment of race and gender using the Master Directory and other sources, we
determined the aggregated availability of DBEs, weighted by WSDOT's spending in its
geographic and industry markets, to be 19.0 % for FHWA-funded contracts and 11.0%
for FTA-funded contracts. Tables G and H present the weighted availability data for all
product sectors combined for the racial and gender categories.

Table G: Aggregated Weighted Availability for FHWA-Funded
Ee
Fr |TEred HEEn a a)1 i EEea TE TTY as -hhe pf 3] es re BARI git FE SRFESTnov]
: liopanic: :olA
| |
: re es
TEBeCe ILWoohd CREHIRSG fe |Non-oeE |Total sa]
[2Ta
Total 1.0% 2.6% 2.1% 3.0% 81.1% 100.0%
Source: CHA analysis of WSDOT data; Hoovers; CHA Master Directory.

Table H: Aggregated Weighted Availability for FTA-Funded Contracts

TOTAL 1.1% 2.1% 1.8% 1.7% 4.5% 11.0% 89.0% 100.0%

Source: CHA analysis of WSDOT data; Hoovers; CHA Master Directory.

Table 4.60 Aggregated Weighted Availability for State-Funded
Contracts

TOTAL 1.1% 2.5% 2.3% 3.1% . 19.0% 81.0% 100.0%

Source: CHA analysis of WSDOT data; Hoovers; CHA Master Directory.

To meet the Ninth Circuit's test that all groups must have suffered discrimination in
WSDOT's markets to be eligible for credit towards meeting DBE contract goals, we next
calculated disparity ratios comparing the Department's utilization of DBEs as prime
contractors and subcontractors to the availability of these firms in its market areas.
Tables | and J present these results for federal-aid contracts.

Table I: Disparity Ratios by Demographic Group,
FHWA-Funded Contracts
BESS TETT iSTRSS SEE EROTT
eei STEE
= It |fhI : Pr TsTERETE
SIGEEOE vYP {WomBe lh
NR X Sindh ARIE ARRAY x,NE2aT can
aes; TER |!a
Disparity Ratio aE 95.9% 135.4% 87.3% 92.5%" 101.6%*
Source: CHA analysis of WSDOT data.
T Indicates substantive significance
***Indicates statistical significance at the 0.001 level
**Indicates statistical significance at the 0.01 level
*Indicates statistical significance at the 0.05 level

Table J: Disparity Ratios by Demographic Group,
FTA-Funded Contracts

Disparity Ratio 0.0%: 62.0%* 0.0%* 0.0%* 4.4% 13.4% 110.7%**
Source: CHA analysis of WSDOT data.
1 Indicates substantive significance
**Indicates statistical significance at the 0.01 level
*Indicates statistical significance at the 0.05 level
To evaluate whether the results would differ on contracts without DBE goals
(‘unremediated markets data"), we further calculated disparity ratios on state-funded
contracts upon which goals were not set during the study period. Table K presents these
results.

Table K: Disparity Ratios by Demographic Group,
State-Funded Contracts
rarer EsERT
Vs es
BHO orarhRIES n
BEi Ra FI a Fr Bi TH iT VR ra
id

RR a atid) AE ee
Disparity Ratio 1.3%+* 71.1%%* 15.2%% 25.6% 34.3%%** | 33.5% 115.5%***
Source: CHA analysis of WSDOT data.
I Indicates substantive significance
***Indicates statistical significance at the 0.001 level
**Indicates statistical significance at the 0.01 level
*Indicates statistical significance at the 0.05 level

Analysis of Economy-Wide Race and Gender Disparities in WSDOT’s
Market

We explored the Census Bureau data and literature relevant to how discrimination in the
Washington State highway industry market and throughout the wider economy affects
the ability of minorities and women to fairly and fully engage in the Department's prime
contract and subcontract opportunities.

We analyzed the following data and literature:

» Data from the Census Bureau's Survey of Business Owners indicate
very large
disparities between M/WBE firms and non-M/WBE firms when examining the
sales of all firms, the sales of employer firms (firms that employ at least one
worker), or the payroll of employer firms.
Data from the Census Bureau’s American Community Survey (“ACS”) indicate
that Blacks, Hispanics, Native Americans, Asian/Pacific Islanders, Others, and
White women were underutilized relative to White men. Controlling for other
factors relevant to business outcomes, wages and business earnings were lower
for these groups compared to White men. Data from the ACS further indicate that
non-Whites and White women are less likely to form businesses compared to
similarly situated White men.
» The literature on barriers to access to commercial credit and the development of
human capital further reports that minorities continue to face constraints on their
entrepreneurial success based on race. These constraints negatively impact the
ability of firms to form, to grow, and to succeed.
All three types of evidence have been found by the courts to be relevant and probative of
whether a government will be a passive participant in overall marketplace discrimination
without some type of affirmative intervention. Taken together with anecdotal data, this is
the type of proof that addresses whether, in the absence of DBE contract goals, WSDOT
will be a passive participant in the discriminatory systems found throughout Washington.
These economy-wide analyses are relevant and probative to whether the
agency may
continue to employ narrowly tailored race- and gender-conscious measures to ensure
equal opportunities to access its contracts and associated subcontracts.

Qualitative Evidence of Race and Gender Barriers in WSDOT's Market

In addition to quantitative data, the courts and the DBE regulations look to anecdotal
evidence of firms’ marketplace experiences to evaluate whether the effects of current or
past discrimination continue to impede opportunities for DBEs such that race-conscious
measures are supportable.

To explore this type of anecdotal evidence, we interviewed 202 participants. Most
reported that, while progress has been made in reducing barriers on the basis of race
and gender, significant inequities remain obstacles to full and fair opportunities. Race-
and gender-neutral approaches alone were described as unlikely to ensure a level
playing field for WSDOT contract opportunities.

Stereotypes, Discriminatory attitudes and negative perceptions of competence:
Many minority and women owners reported that they continue to encounter
discriminatory attitudes, stereotypes and negative perceptions of their
qualifications and capabilities. The assumption is that minority firms are less
qualified. Women of all races often experienced gender bias and exclusion in the
highway industry. The continuing effects of stereotypes about gender roles and
sexist attitudes from male colleagues, clients and agency staff hamper their
opportunities.
* Exclusion from industry networks: Many minorities and women reported that
there still exists a “good old boys” network that makes it difficult for them to fairly
obtain contract opportunities. It can difficult for DBEs to access important
decision makers.

* Obtaining work on public sector construction and consulting projects on an equal
basis: There was almost universal agreement that the DBE Program remains
necessary to reduce barriers to equal contracting opportunities. Most DBEs
reported that without the requirement that prime firms make good faith efforts to
meet contract goals, they would receive little or no work. While minorities and
women found it is easier to obtain subcontracts than prime contracts on public
projects because of affirmative action goals, it is still difficult to get work, receive
fair treatment, and be paid on time. Many believed that majority prime firms use
them only if forced to do so. Obtaining work from local governments that receive
WSDOT funds as subrecipients was especially difficult because of deeply
entrenched small networks of white male-owned firms. Some participants felt the
barriers were more about size and experience, and less about race and gender.
Some owners reported that although their firms have been listed on the contract,
they were underutilized or not utilized at all. Prime contracts were especially
difficult to obtain. Many firm owners would like to perform prime work but are not
afforded that opportunity.

We also conducted an electronic survey of firms in WSDOT's market area about their
experiences in obtaining work, marketplace conditions and WSDOT's DBE program. 78
minority- and women-owned firms participated. The results were similar to those of the
interviews. A significant portion of DBEs reported they still experience barriers to equal
contracting opportunities; questioning of their competency because of their race or
gender; less access to business networks and information; job-related sexual or racial
harassment or stereotyping; and slow payment by WSDOT and/or prime contractors.

Recommendations for WSDOT’s DBE Program

The quantitative and qualitative data provide a thorough examination of the evidence of
the experiences of disadvantaged, minority- and women-owned firms in WSDOT's
geographic and industry markets. These results provide the agency with the evidence
necessary to narrowly tailor its DBE program for federal-aid contracts, as required by 49
C.F.R. Part 26. The statistical data and the anecdotal testimony provide a sufficient
basis for the continued use of narrowly tailored remedial race- and gender-conscious
measures to ensure full and fair access by all firms to WSDOT federally-funded prime
contracting and associated subcontracting opportunities. Based upon these findings,
USDOT guidance and national best practices for DBE programs, we make the following
recommendations

* Increase certification outreach and expertise: Conduct additional outreach to
uncertified minority- and women-owned firms, including those identified through
the study process. Focus on increasing the pool of certified firms that can provide
goods or services in construction subindustries where DBEs have received little
work. Ensure that firms applying for DBE certification are evaluated by a highway
industry expert, and that WSDOT is regularly consulted about certification issues
and unusual situations.

» Monitor prompt payment to subcontractors: Fully implement the B2GNow
electronic data collection and monitoring system and train staff, contractors and
subcontractors on the compliance requirements and how to use it. Evaluate how
well this approach addresses the complaint by subcontractors that prime
contractors often unnecessarily withhold payment. Better educate small
subcontractors about their rights;

* Increase contract unbundling: Continue to unbundle contracts into smaller or less
complex segments to improve small firms’ access to prime and subcontracting
opportunities.
» Ensure bidder non-discrimination and fairly prices subcontractor quotes: To
investigate whether prime contractors solicit DBEs on an equal basis and
whether DBEs inflate their prices to prime contractors, require bidders to
maintain all subcontractor quotes received on specified projects.

» Review insurance and experience requirements: Review surety bonding,
insurance and experience criteria so they are no greater than necessary to
protect the Department's interests. This might include reducing or eliminating
insurance requirements on smaller contracts and removing the cost of the surety
bond from the calculation of the “as read” low bidder on appropriate solicitations.

» Review DBE policies for consulting contracts: Consider permitting prime
consultants to mark up their costs for subconsuitants. Review the Safe Harbor
indirect cost rate to ensure small firms can make a profit on WSDOT contracts
and provide access to construction accountants at reduced fees as part of
supportive services. Evaluate whether prequalification criteria can be reduced to
increase small firm opportunities and competition for WSDOT work. Reduce the
threshold for setting contract goals to $100,000 from $250,000.

» Provide information and training to bidders on program compliance: Provide with
the invitation for bid or request for proposal the scopes of work used by the
Department to set the contract goal. Conduct training on issues such as
commercially useful function determinations, documenting good faith efforts to
meet goals, etc. Training could be mandated as part of the prequalification
process.
» Enhance the small business element: Set aside some smaller or less complex
contracts for bidding only by SBEs as prime contractors. Provide additional
assistance if needed for these firms.

e Enhance supportive services and business development programs: Add a focus
on Black construction and consulting firms. Enhance outreach and provide
supportive services to expand the types of work performed by DBEs. Develop
forms for small firms to use for invoicing and documenting other requirements.
Provide a roster of experienced construction accountants and attorneys at

discounted rates. Collect data on the rates at which certified firms submit bids:
their success in receiving contracts; and any barriers to their participation in the
program or on Department contracts.
Develop a bonding and financing program for SBE: Work with a surety and a
lender to provide a bond and financing for firms that have successfully completed
the program.
Adopt a DBE mentor-protégé program: Develop a program in conformance with
the DBE regulations and guidance. Include criteria on the parties’ qualifications; a
Department-approved written development plan; a long term and specific
commitment between the parties; delineate the use of any equipment or
equipment rental; extra credit for the mentor's use of the protégé to meet a
contract goal, define any WSDOT-approved financial assistance; a fee schedule
to cover the direct and indirect cost for services provided; terminations
provisions; reporting requirements; and Department review procedures.
Provide information and training to WSDOT staff and subrecipients regarding
program: Conduct agency wide and subrecipient training for appropriate staff
regarding topics such as understanding certification eligibility requirements; goal
setting; evaluating good faith efforts and commercially useful function: contract
performance compliance and documentation; Title VI compliance; outreach and
supportive services; and USDOT reporting.
Increase program resources: Create liaisons in each WSDOT District reporting to
the Director of Civil Rights.

Use the study to set the narrowly tailored triennial DBE goal: The availability
estimates in Chapter IV should be the basis for consideration of the triennial DBE
goals for FHWA- and FTA-funded contracts. We found the availability of DBEs to
be 19.0 percent for FHWA-funded contracts and availability of DBEs to be 11.0
percent for FTA-funded contracts. These results can serve as the step 1 base
figure under 49 C.F.R. § 26.459(c). The statistical disparities in Chapter V in the
rates at which DBEs form businesses could serve as the basis for consideration
of an adjustment to the step 1 figure to reflect DBE availability “but for”
discrimination.

Use the study to set narrowly tailored DBE contract goals: The detailed
availability estimates in the study should serve as the starting point for contract
goal setting. WSDOT should weigh the estimated scopes of the contract by the
availability of DBEs in those scopes in the study, and then adjust the result based
on current market conditions. The Department's new B2GNow electronic system
goal setting module should be employed to use the study data as the baseline,
ensure consistency and transparency of this critical element of narrow tailoring.

The disparity results meet the Ninth Circuit's requirement that WSDOT consider
whether each racial and ethnic group and white women have suffered
discrimination in its market. These results were statistically significant for
spending on federally-funded jobs for all groups (other than Native Americans on
FHWA contracts). Disparities were especially low for Black-owned firms, that is,
Blacks-owned businesses received few dollars compared to their availability. The
disparity ratio on state-funded contracts for DBEs combined was 33.5 percent,
including a ratio of 34.3 percent for White women. Further, business owners
provided strong anecdotal evidence of the continuing existence or race- and

gender-based barriers, including bias, stereotyping, harassment, exclusion from
networks and unfair performance standards. The picture drawn by these results
is of a playing field for WSDOT work that is still not level. These stark findings
suggest that WSDOT may infer that the cause is the continued effects of
discrimination on the basis of race and gender. Therefore, to ensure it is not a
passive participant in this discriminatory market, we recommend that the
Department continue to utilize race-conscious contract goals and include all
groups for credit towards meeting contract goals.
Develop Performance Measures for Program Success: WSDOT should develop
quantitative performance measures for overall success of its programs. These
could include progress towards meeting the annual DBE goals; tracking good
faith efforts waivers, findings of non-responsiveness and DBE substitutions;
increased bids/proposals from certified firms; increased variety of types of
contracts awarded to DBE prime vendors and subcontractors; and increased
“capacity” of certified firms as measured by bonding limits, sizeof jobs,
profitability, etc.

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