Follow Up Report on City of Charlotte Disparity Study

1. Franklin M. LeePartner, Law Firm of Tydings & Rosenberg LLPBaltimore, MD Follow Up Report on City of Charlotte Disparity Study City of Charlotte, NC Economic Development Committee City Council May 17, 2012 3:00 P.M.

2. Background • In October 2010 the City retained MGT of America, Inc. (MGT), to conduct a Disparity Study comparing use and availability of minority and women owned business enterprises (MWBEs) on City contracts. • The 2010 Disparity Study covered City spending from July 1, 2005 through June 30, 2010, updating the City’s 2003 Disparity Study (also conducted by MGT).

3. MGT presented findings and recommendations to City Council in September, 2011. • MGT concluded that while some evidence may support the restoration of race and gender conscious subcontracting goals for certain minority groups, the study’s cumulative evidence did not support a legally defensible race and gender conscious contracting program. • On February 13, 2012, following review of the Disparity Study by the Economic Development Committee and the Disparity Study Advisory Committee, City Council voted to retain Tydings & Rosenberg LLP to review MGT’s findings and recommendations.

4. CORE ISSUE • Considering the totality of the evidence presented, does the City of Charlotte have a strong basis in evidence for considering the use of narrowly tailored race / gender-conscious remedial policies to more fully remedy the ongoing effects of marketplace discrimination upon its contracting?

5. CORE ISSUE ANSWER: YES • Particularly in the context of the inability of an aggressive small business enterprise program over an 8-year period to fully eliminate significant disparities in the utilization of ready, willing, and able M/WBE firms.

6. MGT Conclusion Differs • No “strong basis in evidence” for following reasons: • Existing statistically significant disparities in part due to larger M/WBE availability in recent years. • Increased utilization of M/WBE subcontractors in absolute dollars and percentage participation since SBO Program was adopted in 2003.

7. MGT Conclusion Differs • No “strong basis in evidence” for following reasons: • Percentage of total contract dollars going to M/WBE construction subcontractors tripled since 2003. • Increased utilization of M/WBE subcontractors in absolute dollars and percentage participation since SBO Program was adopted in 2003.

8. MGT Conclusion Differs • No “strong basis in evidence” for following reasons: • The SBO Program has been a more effective remedy than Charlotte’s former M/WBE Program • The Charlotte SBO Program is apparently as effective as other M/WBE programs in Charlotte area

9. MGT Conclusion Differs • No “strong basis in evidence” for following reasons: • Anecdotal evidence is weak.

10. Alternative View of Same Evidence • MGT admits that ALL of its measures of availability reflect larger M/WBE availability for this study period. • “Custom Census” approach used in Study Update has been upheld repeatedly in most recent court cases • “Custom Census” methodology more accurately reflects full universe of available firms • MGT is right to rely upon it in latest study

11. Alternative View of Same Evidence • Utilization numerators in disparity ratios from two different time frames are not interchangeable: • For Example: Assume a 1/2 disparity ratio in 2003 as compared to 5/10 disparity ratio in 2010 • Misleading to conclude that SBO Program is successful simply because utilization numerator is five times as big in 2010… disparity ratios remain the same.

12. Alternative View of Same Evidence • Undisputed evidence reflects that SBO Program did not fully eliminate disparities: • Size of disparities in 2003 have been reduced somewhat • But substantial and statistically significant disparities remain • After 8 years of race-neutral SBO Program policy, it is time to consider the use of more aggressive race- conscious remedial policies on a narrowly tailored basis.

13. Persistent Substantial Underutilization in Charlotte Contracting (FY 2006 thru FY 2010)

14. Alternative View of Same Evidence • Presumed superiority of SBO Program as compared to past City M/WBE Program and current nearby M/WBE programs is not necessarily valid, as all M/WBE Programs are not created equal. MGT has not demonstrated that those M/WBE Programs are in keeping with today’s “best practices” such as: • Effective and narrowly-tailored outreach • Strong monitoring • Contract-specific goal-setting • Enforcement through sanctions • Adequate staff and resources • Automated bidder registration, and automation in tracking of availability and actual payment data

15. Alternative View of Same Evidence • Because marketplace discrimination often occurs outside the presence of those affected, there is low probability for victims to have direct knowledge: • Yet, anecdotal evidence is quite robust (over 100 particularized accounts / affirmations of discrimination, w/ four different methodologies) • Anecdotal evidence bolsters conclusion that discrimination occurs in many forms • Discrimination likely occurs in much more than a few isolated instances. • Combined with widespread statistical disparities, anecdotal evidence supports class-based remedies.

16. POLICY RECOMMENDATIONS • Hybrid SBO / M/WBE Program with following features: • Contract-specific determinations for the application of SBO or M/WBE program features based on clear criteria • SBE or M/WBE subcontracting goals with good faith efforts • Vendor rotation on informal contracts • Increase formal bid threshold to $500,000 on construction contracts

17. POLICY RECOMMENDATIONS • Automated Mandatory Centralized Bidder Registration: The Benefits • Enhances targeted automated outreach • Greatly reduces administrative burden for: • satisfying good faith efforts requirements • contract-specific goal setting • tracking and reporting of M/WBE utilization thru payments • providing transparency in payments for better enforcement of prompt payment provisions

18. POLICY RECOMMENDATIONS • Automated Mandatory Centralized Bidder System Models: • Washington Suburban Sanitary Commission (developed in-house) • The Metropolitan District (Hartford, CT) off-the-shelf software product • DFW Airport (off-the-shelf software product) • City of Columbia, SC (developed in-house)

19. Best Practices in Race-Neutral Remedies • Vendor Rotation Options • Bid Solicitations on informal contracts require at least one or two out of three firms to be contacted for quotes are SBEs • Job Order Contracting (multiple prequalified firms selected on formal contracts) with rotation of assignments of repetitive tasks • Increase informal dollar threshold on construction contracts to $500,000 and reserve bidding for SBE primes.

20. Best Practices in Race-Conscious Remedies • Hybrid SBO / M/WBE Programs • City of San Antonio Model • Washington Suburban Sanitary Commission Model • Contract-by-contract determinations of when to apply SBE goals vs. M/WBE goals based upon clearly stated criteria, and size of goals • Goal setting committee(s) functions as check and balance in applying race-conscious remedies

21. Best Practices in Race-Conscious Remedies • Benefits of Hybrid SBO / M/WBE Programs: • Most “narrowly tailored” form of race-conscious program • Reduces legal risks from constitutional challenges • Typically reduces the need for waivers that can delay procurement process and encourage bid protests / lawsuits • Maximum flexibility for varying the aggressiveness of remedies to get best results

22. QUESTIONS??? Franklin M. Lee, Esq. Partner Tydings & Rosenberg LLP 100 E. Pratt Street, 26th Fl. Baltimore, MD 21202 (410) 752-9734 E-mail: flee@tydingslaw.com