Agricenter HVAC contract reveals waste, loopholes in Shelby Co. minority business program

Published: Sep. 21, 2017 at 7:19 PM CDT|Updated: Sep. 26, 2017 at 4:57 AM CDT
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MEMPHIS, TN (WMC) - The Shelby County Board of Commissioners will consider changes to the county's minority preferred vendor program after it awarded a contract to a company that's not minority owned at an additional cost to county taxpayers.

About a year ago, the board launched a preferred vendor program to reward racial and gender diversity on county construction projects. The program gives preference to local businesses who have applied and been certified as minority or woman-owned business enterprises, or "M/WBE." To be certified, companies must meet a minimum requirement of 28 percent minority or women-owned participation.

In June 2017, the M/WBE program awarded contractor Damon-Marcus Company of Bartlett, Tennessee, the job of retrofitting the HVAC system of Agricenter International, 7777 Walnut Grove Road. The contract indicated Damon-Marcus did the work at a cost of $2.3 million.

A bid comparison document (below) prepared by Shelby County Administrator of Purchasing Sylvie Le Bouthillier revealed Damon-Marcus won the contract even though it was the second-highest bidder. The lowest-bidder, a woman-owned local business, was eliminated because it "did NOT meet" the bid's "African American biz" requirement. The county eliminated the second lowest bidder, a locally-owned contractor, because it "...did not meet the 28 % (minority business participation) goal..." By process of elimination, the county awarded Damon-Marcus the job at a rate that is $360,121 above the lowest bid. That reflects a 19 percent mark-up on Shelby County taxpayers.

When we asked Shelby County Commission Chairperson Heidi Shafer if the taxpayers got a good value on the purchase order, she replied, "In this case, no, I don't think they got the best value."

Digging deeper into the contract, we discovered Damon-Marcus is neither a certified M/WBE, nor is it a minority-owned business. County documents confirmed it qualified for the Agricenter HVAC contract because it hired a subcontractor certified under the county's Locally Owned Small Business (LOSB) program and two more subcontractors who met the 28 percent minority participation requirement. The sub arrangements were in compliance with M/WBE county ordinances, according to Le Bouthillier.

"Damon-Marcus is not a minority owned contractor," said Stephanie Alexander, executive director of the Memphis Area Minority Contractors Association (MAMCA). "It is customary for a non-minority owned prime contractor to list minority owned M/WBE firms in order to meet the participation goal on a project. MAMCA does not have a problem with this because this is the way the programs are intended to work."

Despite charging county taxpayers nearly $400,000 above the lowest bid, Damon-Marcus's president Marc Parker said his company won the Agricenter contract fair and square.

"It would not be a good idea for me to discuss the details of how we prepare our bid proposals or comment on the differences in the bids of other contractors," Parker wrote in an email response. "Our goal at this time is to perform our work in the most efficient manner and to the best of our ability as a contractor who has been in business for 32 years."

Shafer doesn't have an issue with Damon-Marcus' use of subcontractors to comply with the minority preferred vendor program's ordinances. But she said she does have a problem with the company's 19 percent mark-up on the contract.

"It's a problem we need to cure," she said.

She's proposing a cap on the amount a certified M/WBE can offer above the lowest bidder on a construction proposal. She suggested an eight percent cap or no more than $40,000 above the lowest bid.

"So putting those checks-and-balances is important to try to make sure that we're getting the best deal for the taxpayers on these things," Shafer said.

"Shafer is acting prematurely in making changes to the bid rules," Alexander said. "Shelby County Government correctly made the award...There was only one bidder that played by (the program's ordinances). Shelby County government should not blow up its new M/WBE program after only one bid given a lifetime of discriminating against African American-owned firms."

Shafer said the minority cap proposal would have to pass three readings before the full Shelby County Commission.

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