After much debate, KC Council revises rules on hiring minority- and women-owned firms

After nearly a year of debate and behind-the scenes wrangling, the Kansas City Council agreed unanimously Thursday to revise rules governing its program that requires companies working for the city to hire women- or minority-owned firms as subcontractors.

The 20-year-old program, called MBE/WBE (minority- and women-owned business enterprise), was established to remedy decades of discrimination.

Last year, those companies received an estimated $295 million worth of subcontracts for construction, engineering, accounting and other work.

The changes include a provision that allows large minority firms who win prime contracts to meet MBE/WBE subcontracting requirements with their own personnel, a practice called “self-performance.” Some small MBE/WBE firms protested the new rule, arguing that it will dry up some of their city work.

The new rules also impose a net worth test to determine the eligibility of minority company owners. The council adopted guidelines established by the U.S. Department of Transportation that limit an eligible contractor’s personal net worth to $1.32 million. That excludes any equity in the business or a home.

The revisions were spurred by the findings of a 2016 study that said the city’s race- and gender-based contracting programs might be vulnerable to court challenge because they are not sufficiently “narrowly tailored,” as required by law, to help those in need.

The biggest point of contention, one that for months pitted the city’s development community against many MBEs and WBEs, was the meaning of the term “good faith effort.”

The law requires majority-owned firms to be diligent in searching for minority subcontractors to hire. Firms that do not make the effort are subject to monetary damages.

The specific flashpoint involved majority companies working on projects with city agencies that grant property tax abatements and other incentives to developers who build in blighted areas.

Under the previous regulations, the last word belonged to the agencies, including the Tax Increment Financing Commission, the Land Clearance for Redevelopment Authority and the Planned Industrial Expansion Authority.

Human Relations director Phillip Yelder, who runs the MBE/WBE program, contended that his department should have final say because the agencies seldom find a problem. Yelder told a City Council committee this spring that over the last four years he has recommended more than $16 million in liquidated damages against firms but that just $90,000 was actually assessed by the incentive agencies.

He was supported in his position by many minority- and women-owned firms and the council’s four African-American members.

Agency and developer attorneys said the city lacked the standing to insist on damages because the contracts in question are between the developers and the agencies.

The compromise struck by the council kept final say with the agencies. But it added provisions requiring that disagreements between Yelder and the agencies first be brought to the Fairness In Construction Board, a panel appointed by the mayor and council to hear disputes over bidding and contracting matters involving MBEs and WBEs.

The measure appeared to finally be headed toward passage Thursday when a last-minute amendment, sponsored by Mayor Pro-Tem Scott Wagner on behalf of the development community, sparked more debate.

Wagner said his amendment only smoothed out procedural inconsistencies in the ordinance. Councilmen Jermaine Reed and Quinton Lucas contended they were more substantive. During a 20-minute recess, the final differences were worked out.

“Praise the Lord,” said Mayor Sly James.