Six state DOT heads signed a pledge last week to leverage funding from the $1.2 trillion Infrastructure Investment and Jobs Act to reduce the racial wealth gap. California, Illinois, Kansas, Louisiana and Missouri, plus Washington, D.C., aim to do so by creating more opportunities for historically disadvantaged construction businesses — with an emphasis on prime contracting roles.
“We thought that contracting was one of the ways we could use to increase generational wealth in underserved communities,” said Phil Washington, co-chair of the Equity in Infrastructure Project, at a press event on Oct. 11. “These six [DOTs] represent billions of dollars in infrastructure monies, and billions of dollars in terms of the work that they do in their respective states. So this pledge to significantly increase minority prime contracting is very, very significant.”
The IIJA stipulates that at least 10% of federal transportation and transit project funds go to DBE enterprises, and it also places an emphasis on prompt payment to DBE subcontractors in order to remedy ongoing effects of past discrimination against small firms owned and controlled by disadvantaged individuals. In July, the White House proposed updates to the Disadvantaged Business Enterprise Program regulations.
These efforts are part of the Biden administration’s Justice40 Initiative goal for 40% of the overall benefits of certain federal investments — including the IIJA and the Inflation Reduction Act — to flow to disadvantaged communities.
Although it is an independent entity, the Equity In Infrastructure Project aims to support those federal efforts to increase the number, size and proportion of contracts going to historically disadvantaged contractors. Participants have also committed to streamline processes for obtaining necessary DBE certifications, improve payment time and expand access to financing to help underserved businesses meet infrastructure contracts, according to EIP’s website.
Attendees at last week’s event offered other strategies to address the gap as well, such as: provide technical assistance to DBEs, increase skills training and publicizing civil work opportunities.
Barriers for small and disadvantaged contractors
One of the challenges that small and disadvantaged businesses face is getting access to insurance needed for such federal work. The criteria for better rates favors established builders, and makes it difficult for newer ones to compete.
“We recognized that our industry is itself an institutional perpetuator of inequity,” said Ingrid Merriweather, EIP Advisory Council member and CEO of Merriwether & Williams Insurance Services, at the event. “Lack of access to required insurance at competitive cost and bonding — both of which are standard risk management of all public construction — were inhibiting equitable contracting participation by minority and small construction firms.”
To address this, a few decades ago the organization procured bonding for DBE clients on public works projects through a process called aligned risk management. It sought to prove that a more level playing field benefits both small contractors and project owners alike — and indeed, over 25 years, the program demonstrated that use of DBEs reduced project costs and slashed the loss ratio to almost nothing.
“We were afforded the opportunity to prove that effective risk management and inclusion of minority businesses were not mutually exclusive. You could in fact do both, and moreover, you can expand the field of those enabled to bid [federal] work,” Merriweather said. “We were able to prove that when you remove these barriers, provide supportive services and integrate risk management in the process, not only can [small contractors] participate, but according to the stats, outperform their larger peers.”
Another challenge small contractors face after they land a contract is a lack of cash flow, according to Merriweather. One way to address this is to partner with Community Development Financial Institutions to provide contract funding, and use the contract as collateral and the source to repay funds.
Experts at the event urged other state, local and private leaders to step up to close underutilized firms’ participation gap.
“We have to seize the moment,” said EIP Co-Founder and former U.S. DOT Deputy Secretary John Porcari. “We have unprecedented funding at the federal level for five years, we have a public that’s hungry for infrastructure across the spectrum, and we have public agencies and private partners that are eager to deliver.”