Constrafor Industry Councils:
Diversity Compliance in Construction
With Brian Sanvidge
The inaugural Constrafor Diversity Council provided in-depth perspectives from leading industry professionals, coupled with an interactive discussion led by compliance expert Brian Sanvidge, CIG, CFE, of Anchin, Block & Anchin. Specific topics discussed included: the current landscape of diversity in the construction industry, obstacles, and opportunities.
Diversity in Construction: The Current Landscape
Diversity & Inclusion has become more crucial in the success of construction projects, and progress has only just started to gain momentum. What was once only a requirement for public works projects, is now finding its way into the private sector, and General Contractors have found themselves navigating a new world in the construction industry.
New requirements are coupled with a renewed passion and dedication to diversity inclusion at a community level. A state or federally funded project’s DNI numbers will be publicly scrutinized. Project stakeholders must understand that even without contractual obligations, they can still be held accountable by their community. As a result, GCs have found themselves in a position to lead the charge and elevate the conversation around diversity with Subcontractors, Owners, and Developers alike.
In an effort towards progress, many GCs are setting their own internal targets, regardless of contractual requirements at the project level. At Gilbane, the bar is set high, and the company tracks diversity metrics across their entire portfolio, striving to reach a minimum of 20% MWBE. “We care about economic inclusion. Displaying integrity means we don’t just do this when someone’s looking at it or when someone’s telling us to do it, we do it because we care about it,” said John Rooney, Economic Inclusion Manager at Gilbane.
Public vs. Private Projects
Diversity requirements in government-funded projects come as no surprise, but now GCs are facing clients in the private sector with increased interest in diversity inclusion. Questions about DNI numbers, MWBE outreach, and mentoring have become a part of the interview process.
In many cases, a private sector client may only give preference to a GC advancing diversity inclusion in good faith, but in some instances these targets find their way into the contract. With increasing frequency, these goals are tied to liquidated damages in private sector projects, indicating a new industry trend and underscoring the importance of diversity inclusion in all facets of a GC’s portfolio.
Penalties & Missing Targets
In addition to liquidated damages in the private sector, substantial penalties are being applied in the public sector as well. Many State and Federal agencies are now in a position to effectively monitor and enforce DNI requirements and GCs face new risks associated with diversity compliance.
For example, a New York State not-for-profit received government funding for a project, with a WMBE DNI requirement of 30%. They chose their team and contractors, built the project, but were in the single digits for DNI compliance. As a result, the government pulled a third of the funding for missing this target. The not-for-profit was on the hook for the rest of the project budget, requiring financing through a short-term loan. The hit to their reputation is an intangible cost, but will impact future government funding.
Diversity in Construction: Barriers to Compliance
The picture of progress is never static, it’s blurry and ever-evolving. When navigating any new challenge, there will be obstacles and unforeseen circumstances abound. As diversity targets have created new pressure in the industry, GCs have to reevaluate their bidding tactics and engage with emerging WMBE Subcontractors in more ways than ever before.
But what do you do when your targets don’t seem feasible? In Washington state, a University project required 26% WMBEs, but minority representation in the general population is around 7-10%. New York State requires 30%+, but outside of New York City, the population is less diverse and far less dense.
On top of that, documentation and certification requirements vary across all levels of Local, State, and Federal Government. Waivers may require extensive and even unattainable documentation. In some cases, a form filled out in good-faith is enough to satisfy government requirements.
Considerations
1. Start With Bid Packets
- Work with procurement to place WMBEs on the prime bid list; remove non-compliant Subs from the bid list
- Evaluate spend with WMBE Tier 1 Subcontractors hiring Tier 2 Subcontractors
- Avoid hitting targets with small, incremental spend
2. Focus on Outreach
- Involve Program Management, Owners, and Elected Officials for public projects
- Educate project stakeholders on DNI compliance and associated penalties for non-compliance
3. Understand Mobilization Costs
- Where can you bring more people into the project?
- What are your mobilization challenges based on geographic location?
4. Learn Local Requirements
- What documentation or certifications are required?
- How intensive is the documentation effort?
- How difficult or easy is it to get certification?
- What tracking or reporting is required to achieve and maintain certification?
5. Offer Mentorship Opportunities
- Find MWBEs to support and help build capacity
- Understand if Sub needs guidance on WMBE certification or documentation
- Track and monitor Sub performance and designate as prime
Diversity In Construction: The Role of the GC
In order to meet their DNI requirements, GCs have been pushed to explore new avenues of outreach, reporting, and documentation. The GC/Sub dynamic is being tested in new ways, but with GCs’ increased reliance on MWBEs, a tremendous amount of opportunity has made its way to the hands of small and disadvantaged businesses.
In light of this, GCs are focusing on the development of emerging WMBEs by providing new services, education, and mentorship opportunities. It’s now also more important for GCs to accommodate disadvantaged businesses through financial means in order to ensure their ability to complete a project.
Pre-Qualification
Currently, GCs rely heavily on pre-qualification due to COVID-19 associated supply-chain issues impacting the industry. The pandemic has taken its toll on large and small businesses alike and historically reliable contractors might face financial hardship and project setbacks. To maintain project timelines, it’s crucial to have access to pre-qualified WMBE Subcontractors.
GCs are attempting to get ahead of project delays while meeting DNI requirements by focusing their efforts on pre-qualifying existing Subs and identifying potential candidates to prepare them for the pre-qualification process. It’s important to identify education and mentorship opportunities to support Subs in meeting your criteria.
Education & Mentorship Opportunities
Mentorship programs for WMBEs are increasingly common at large GCs. The goal is to achieve DNIs by building from the ground up, simultaneously developing a strong Subcontractor relationship and an WMBE you can rely on.
1. Run the Numbers
- Audit finances and accounting to ensure bonding is possible as required by public projects
- Audit DNI numbers to ensure accuracy, and provide best-practices for tracking and reporting
2. Provide Education
- Find ways to engage with your Subcontractors to further their understanding of diversity compliance
- Provide opportunities like round-table discussions or sponsor access to educational programs for WMBE leaders
3. Documentation & Certification
- Identify WMBE candidates and help them attain certification
- Research documentation and certification requirements at local, state, and federal levels for individual projects and identify Subs in need of support
4. Financing Options
- Communicate to Subs that you are here to help; conversations about financial constraints are welcome and appreciated
- If possible, pay upfront for materials, supplies, and/or equipment as a “line of credit”
- Educate small businesses on all financing options, including low-interest loans and invoice factoring
Future Discussion
With an interactive and open discussion, not every question has time to get answered and not every topic gets covered in depth. Here are a few items of interest discussed briefly during the panel. Look out for our survey and let us know which topics, or any additional topics, you would like to discuss at the next Diversity Council Meeting.
- Tracking & Reporting Best Practices
- How to Create a Mentorship Program
- Establishing DNI Benchmarks
- How to Enforce Compliance: penalties and repercussions for non-compliance
- Barriers to Certification & Documentation
Interested in Learning More?
Would you like to learn how Constrafor’s Diversity Procurement tool can help you track diversity spend across your supply chain? Schedule a meeting!
Contact us at support@constrafor.com to join future Industry Council panels.
