Companies still bend Philadelphia minority-hiring rules

Ten years ago, Mayor John F. Street took the podium at a NAACP convention and declared: "The brothers and sisters are running this city. Running it! Don't you let nobody fool you; we are in charge of the City of Brotherly Love."

Yet when it came to city contracts, most black-owned companies were getting no love. They were getting a ridiculously thin slice of a huge pie.

Between 1998 and 2003, only 2.3 percent of city-contract dollars went to minority-owned firms and 2.2 percent to women, according to Councilman W. Wilson Goode Jr.

Companies owned by white men handled 95.5 percent of the work in a city that is about 43 percent black and 41 percent white.

Those numbers are dramatically changed today. The city says that companies run by minorities, women and people with disabilities snagged 26.6 percent of contract dollars during the first quarter of fiscal year 2012.

But some of that money still finds its way into the bank accounts of white men.

For years, contractors have ignored the city's minority-participation laws or have hatched schemes to circumvent them. Some hire minority firms that, in turn, pass on the work to vendors that might not be minority-owned or have a diverse workforce.

As a result, the amount of "true minority work" in Philadelphia falls short of the percentages that the city publishes, said Joanna Harris, an African American operating engineer who sits on the city's Board of Labor Standards.

"It's a fiasco," said Harris, owner of A.R.B. Construction. "For too many years it's been going on. Everyone's talking about it, but no one is really doing anything about it."

That is changing. Mayor Nutter signed legislation this month to crack down on firms that flout or abuse the city's contracting requirements. The bill, sponsored by Goode and passed unanimously, will create a committee to hear testimony from whistle-blowers and recommend to City Council which companies should be barred from doing business with the city.

"I want to keep people honest by having an open and transparent process where people are encouraged to come snitch when they know there are contractors not complying with city rules," Goode said.

Some companies have brushed aside provisions for disadvantaged businesses because, until recently, there was minimal enforcement.

Those days are over, said Philadelphia Inspector General Amy Kurland. In January, Kurland announced that her office had uncovered a minority-contracting scheme involving a $1 million weatherization contract with the Philadelphia Housing Development Corp.

Kurland said that the prime contractor, UGI HVAC Inc., claimed to be buying hot-air furnaces and other products from JHS & Sons Supply Co., a certified minority-owned firm. But UGI, she said, was really buying goods from William Betz Jr. Inc., a white-owned company. Investigators discovered that Betz was paying JHS 3 percent of the contract proceeds to use the company's name to meet the minority-contracting requirement.

"They got caught with their hand in the cookie jar, but everyone is doing it," Harris said. Investigators say Betz used JHS as a phony contractor on at least 14 other city contracts.

"It seems like sham minority businesses are sort of a common scheme," Kurland said. "The company that's being used as a 'pass through,' it's kind of a benefit for them because they're getting money for absolutely nothing, just the use of their name."

The city is seeking to have Betz banned from doing business with it for up to three years. JHS has been removed from the list of certified minority contractors, and UGI agreed to pay the city $100,000 as part of a no-fault settlement.

Violating the hiring requirements can hurt a company's bottom line - if the company is caught. In May, the city announced that it had banned Ernest Bock & Sons Inc. from bidding on city contracts through next month because the company had failed to use minority firms on a $35.9 million airport-construction contract.

Money intended for women and minorities ultimately ends up in white men's pockets in other ways, in some cases without even running afoul of minority-contracting rules.

On city construction contracts, for instance, disadvantaged subcontractors are required to perform only 20 percent of the subcontract value themselves - meaning that up to 80 percent of their cut could be sub-subcontracted to nonminority male-owned firms. The city does not track where that money goes once the contracts are sliced up a second time.

"Our hope and expectation would be for them to subcontract with other minority- and women-owned businesses, but that is their business decision," Angela Dowd-Burton, executive director of Philadelphia's Office of Economic Opportunity.

In 2010, there were about 1,300 certified minority-, woman- and disabled-owned businesses in the city's registry. Today, there are more than 2,000, Dowd-Burton said.

Another loophole in the system is that some companies owned by women or minorities have a workforce consisting mostly of white males.

"Once they get the contract, some of them couldn't care less if their workforce has minorities," said Margarita Padin, 48, a Latina carpenter from North Philly who has been leading rallies at a Temple University construction site, calling for the hiring of more local residents.