Local Government Purchasing and Contracting

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.)

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)).

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.

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.

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.

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.

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.

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/.

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.

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.

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.

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.

1. 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