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Frequently Asked Questions
for Local Government Officials
- Are North Carolina local governments
required to have M/WBE programs?
- What types of projects require M/WBE
efforts?
- How is an M/WBE defined?
- What are local governments required
to do with respect to M/WBEs?
- What constitutes good faith efforts
and who must make them?
- How does the good faith effort requirement
fit with the requirement to award contracts to the
“lowest responsible bidder?”
- Do good faith efforts requirements
apply to projects in the informal bid range?
- What are the M/WBE reporting requirements
for public agencies?
- Are there any sanctions or other consequences
if a local government fails to comply with the requirements
of G.S. 143-128.2?
- Are there M/WBE requirements for the
selection of architects, engineers, surveyors, and
construction managers at risk?
- How should local governments establish
legally enforceable goals under G.S. 143-128.2?
- What are disparity studies and are
local governments required to have them?
- Where can I find more information
about this topic?
- Q: Are
North Carolina local governments required to have
M/WBE programs?
A: Yes, programs to encourage M/WBE participation
are required for building construction and repair
projects. G.S. 143-128.2 sets out specific requirements
that apply to local government projects costing $100,000
or more which receive any appropriated or grant funding
from the state. For local government projects not
funded with state dollars, these requirements apply
to projects with total costs of $300,000 or more.
Building construction and repair projects with lower
job costs and in the informal bid range are subject
to less stringent requirements. (See question 7 below.)
- Q: What
types of projects require M/WBE efforts?
A: The minority outreach requirements in G.S. 143-128.2
apply only to building construction or repair projects.
The statute does not define the term “building.”
Local governments must decide on a case-by-case basis
whether a particular project is subject to the statute.
Though not exclusively, the word building is usually
associated with construction projects that require
plumbing, electrical, and heating or air conditioning
contractors. Most jurisdictions interpret “building
and construction repair” to mean that the requirements
do not apply to other types of construction such as
streets or utilities. The North Carolina Department
of Environment and Natural Resources (DENR), however,
interprets the statute to apply to utilities. Therefore,
a local government entity using grant funds from DENR
for utility construction will be subject the requirements
of this statute. The statute explicitly states, though,
that the requirements do not apply to “prefabricated
or relocatable” buildings (G.S.143-128(g)).
- Q: How is an M/WBE defined?
A: G.S. 143-128.2 defines a “minority business”
as a business that is at least 51 percent owned by
one or more minority persons or socially and economically
disadvantaged individuals. These persons must also
control the management and daily business operations.
The statute also includes corporations in which at
least 51 percent of stock is owned by one or more
minority or socially and economically disadvantaged
individuals. The statute defines the term “minority
person” as a Black, Hispanic, Asian American,
American Indian, or female U.S. citizen or lawful
permanent resident. A “socially and economically
disadvantaged individual” is defined by reference
to a federal statute (15 U.S. C. § 637). Socially
disadvantaged individuals are “those who have
been subjected to racial or ethnic prejudice or cultural
bias because of their identity as a member of a group
without regard to their individual qualities.”
Economically disadvantaged individuals “are
those socially disadvantaged individuals whose ability
to compete in the free enterprise system has been
impaired due to diminished capital and credit opportunities
as compared to others in the same business who are
not socially disadvantaged.” The federal law
provides methods of determining economically disadvantaged
status based on the individual’s assets and
net worth. A socially and economically disadvantaged
business is one that is 51 percent owned by one or
more socially and economically disadvantaged individuals,
an economically disadvantaged Indian tribe, or an
economically disadvantaged Native Hawaiian organization.
- Q: What are local governments
required to do with respect to M/WBEs?
A: Following notice and public hearing, local governments
must adopt an appropriate verifiable percentage goal
for M/WBE participation in covered contracts. They
also must establish written guidelines to ensure “good
faith efforts” in recruiting and selecting M/WBEs.
They must also make and document their efforts to
use minority firms in projects costing between $30,000
and $500,000 and to use minority firms for architectural,
engineering, surveying, and construction manager at
risk services.
- Q: What constitutes good
faith efforts and who must make them?
A: G.S. 143-128.2 creates specific requirements for
both owners (public agencies) and bidders to satisfy
the good faith efforts obligations. Subsection (e)
outlines steps a public agency must take before awarding
a contract. They include developing and implementing
a minority business outreach plan, attending prebid
conferences, and providing notice to minority businesses
at least ten days prior to bid opening. The statute
specifies what information must be included in the
notice.
Subsection (f) sets out steps that bidders must take
to satisfy the good faith efforts requirements. There
are ten activities listed in the statute from which
bidders may choose in carrying out their obligations
under the law. Each activity is assigned a value of
ten or more points. The total number of points is
used to determine whether a sufficient effort has
been made. A minimum of fifty points is required if
the goal is not met. The statute allows any public
agency to require additional efforts in its bid specifications.
Under G.S. 143-128.2(c) all bidders (including first-tier
subcontractors on construction manager at risk projects)
must identify on their bids the minority businesses
that they will use on the project and the total dollar
value of the bid that will be performed by minority
businesses. They must also include an affidavit listing
the good faith efforts they have made under subsection
(f). If contractors intend to perform all of the work
with their own forces, they may submit an affidavit
to that effect instead of providing the otherwise
required information on minority participation and
good faith efforts. A bidder must provide either (1)
an affidavit describing the portion of the work to
be executed by minority businesses, expressed as a
percentage of the total contract amount, showing a
percentage equal to or more than the applicable goal
on the project, or (2) documentation of good faith
efforts to meet the goal, “including any advertisements,
solicitations, and evidence of other specific actions
demonstrating recruitment and selection of minority
businesses for participation in the contract.”
G.S. 143-128.2(c)(1)(b). The law states that an affidavit
showing participation equal to or greater than the
applicable goal “shall give rise to a presumption
that the bidder has made the required good faith effort.”
G.S. 143-128.2(c)(1)(a). Failure to provide the affidavit
or documentation required to demonstrate good faith
efforts is grounds for rejection of a bid.
- Q: How does the good faith
efforts requirement fit with the requirement to award
contracts to the “lowest responsible bidder?"
A: Local governments are required to award contracts
to the lowest responsible bidder. Contracts are to
be awarded without regard to race, religion, color,
creed, national origin, sex, age, or handicapping
condition. G.S. 143-128(h) states explicitly that
nothing in the statute requires contractors or awarding
authorities to award contracts to or make purchases
from M/WBEs that do not submit the lowest responsible,
responsive bids. A bid from a contractor who fails
to meet the goal or to make the necessary good faith
efforts, however, may be rejected.
- Q: Do good faith efforts
requirements apply to projects in the informal bid
range?
A: Yes. The informal bidding statute, G.S. 143-131,
requires public agencies to solicit minority participation
for building construction or repair contracts in the
informal range (between $30,000 and $500,000). The
law requires the agency to document its efforts but
makes clear there is no requirement to formally advertise
the bids. Upon completion of the project, public agencies
must report to the Office of Historically Underutilized
Businesses (HUB) in the Department of Administration
“all data, including the type of project, total
dollar value, dollar value of minority business participation
on each project, and documentation of efforts to recruit
minority participation.” (G.S. 143-131(b)). Note that there is an overlap of the application of the requirements in G.S. 143-131 and the requirements in G.S. 143-128.2 for projects that cost between $300,000 and $500,000.
- Q: What are the M/WBE reporting
requirements for public agencies?
A: For each building project, public agencies
are required to report to the Department of Administration:
(1) the verifiable percentage goal; (2) the minority
business utilization achieved, the good faith efforts
guidelines or rules used, and the documentation accepted
by the public agency from the successful bidder; and
(3) the utilization of minority businesses under the
various construction methods authorized under G.S.
143-128(a1). The University of North Carolina and
the State Board of Community Colleges report quarterly,
and all other public agencies report semiannually.
An electronic reporting system called HUBSCO has been
created for these reports. You can more information on HUBSCO on the website for the Office of Historically Underutilized Businesses (HUB), here: http://www.doa.state.nc.us/hub/.
- Q: Are there any sanctions
or other consequences if a local government fails
to comply with the requirements of G.S. 143-128.2?
A: If a local government does not comply with the
requirements of G.S. 143-128.2, the Secretary of Administration
will identify the government’s deficiencies
and notify it. The local government then must develop
a corrective plan to address those deficiencies. To
the extent feasible, the corrective plan should apply
to the current project, but it may also apply to subsequent
projects under G.S. 143-128 as appropriate. If the
local government receives notification of noncompliance
from the Secretary and does not file a corrective
plan, or if it does not properly implement the corrective
plan, the local government is subject to further consequences.
The Secretary may require the local government to
work with the Office of Historically Underutilized
Businesses (HUB) to develop a new corrective plan
subject to approval by the Department of Administration
(DOA) and the Attorney General. The Secretary may
also require the Department of Administration and
the Attorney General to review the local government’s
new corrective plan prior to any projects bid under
G.S. 143-128 for a period determined by the Secretary,
but no longer than one year. G.S. 143-128.3 outlines
these sanctions, and question 14 below provides a
link to the statute.
This statute also provides that DOA shall report
any public entity that does not report the required
information to the Department. DOA must also notify
the Attorney General of any false statements knowingly
provided in any documentation associated with G.S.
143-128.2. Public entities should provide information
of any such false statements to the Secretary of
Administration.
- Q: Are there M/WBE
requirements for the selection of architects, engineers,
surveyors, and construction managers at risk?
A: Construction managers (CM) at risk for building
construction or repair projects subject to the M/WBE
good faith efforts requirements of G.S. 143-128.2
must submit a plan for compliance with these requirements.
The local public entity must approve this plan prior
to the CM’s soliciting bids for first-tier subcontractors
for the project (G.S. 143-128.1). G.S. 143-64.31 requires
the state and all local public entities to use good
faith efforts to notify minority firms of bid opportunities
for architectural, engineering, surveying, and CM
at risk services. The statute does not specify expected
good faith efforts or reporting requirements in the
way it is spelled out for construction contractors.
- Q: How should local
governments establish legally enforceable goals under
143-128.2?
A: Programs designed to increase the use of minority-owned
businesses on public projects have been subject to
challenges in state and federal courts since the United
States Supreme Court’s decision in 1989 invalidating
the City of Richmond’s program. (City of Richmond
v. J.A. Croson Co., 488 U.S. 469 (1989)). The Court
held in that case that programs that create preferences
or otherwise use race as a factor in the award of
public contracts are subject to strict scrutiny and
must be supported by a compelling justification by
the government in order to satisfy the constitution’s
equal protection requirement. To meet that requirement,
many jurisdictions, including several North Carolina
local governments and the State of North Carolina,
have conducted disparity studies to document the history
of discrimination in the construction industry as
well as the underutilization of minority businesses
by the public agencies themselves. Many local governments
in North Carolina, however, have not conducted such
inquiries and do not have documentation to support
the goals programs that have been in effect pursuant
to the requirements of G.S. 143-128(f). While many
have argued that the “good faith efforts”
requirements under the statute do not create a preference
and are thus race neutral, a review of cases decided
around the country suggests that if challenged, a
decision to reject a bid for failure to meet the good
faith efforts requirement would probably be subject
to strict scrutiny.
Local government officials are advised to develop
or obtain information about the availability and local
utilization of minority contractors in their particular
areas in order to establish supportable goals. Public
agencies should consider developing separate goals
for the different categories of minority firms, as
defined under the statute, and for different types
of work, since the availability of minority firms
varies according to the type of contract involved.
Information from statewide or other local government
disparity studies may help support a particular jurisdiction’s
goal.
- Q: What are disparity
studies and are local governments required to have
them?
A: As noted in the previous question, disparity studies
are designed to document past discrimination in the
awarding of contracts by a particular jurisdiction
as well as in the industry in general. Local governments
are not required to have them, but they may work to
support the constitutionality of a local government’s
M/WBE program.
Greatly simplified, a disparity study evaluates the
past contracting practices of a local government that
proposes to implement an M/WBE program, the market
area from which the contractors doing business with
the unit are drawn, and the availability of qualified
M/WBE contractors within that market area in the trades
used by the unit. The study then analyzes whether
there is a statistically significant disparity between
the firms available to and those used by the local
government, attempting to control for race-neutral
factors such as firm size and experience. Such a disparity
is evidence of discrimination. A disparity study also
evaluates anecdotal evidence and statistical evidence,
where available, of discrimination in the local marketplace
to determine if the governmental unit has been a passive
participant in industry-wide discrimination. Evidence
may be drawn from census data, the records of the
unit being studied, federal studies, public hearings,
surveys, and interviews.
A number of private consulting firms have developed
expertise in conducting disparity studies. The studies
can be costly (ranging from $50,000 to hundreds of
thousands of dollars, depending on the size of the
unit), time consuming, and demanding for local government
staff.
- Q: Where can I find more
information about this topic?
A: The following websites contain helpful information
about M/WBE participation goals and program requirements.
N.C.
General Statute 143-128.2
N.C.
General Statute 143-128.3
N.C.
General Statute 143-131 – Informal Bidding Requirements
N.C. Department
of Administration, Office of Historically Underutilized
Businesses
State
Construction Office
UNC-CH Historically
Underutilized Business Resource Center
For comments or questions about this website e-mail Eileen Youens, Assistant Professor of Public Law
and Government at the School of Government, University
of North Carolina at Chapel Hill. |
