Efforts by the city of Portland to achieve construction equity goals have been undercut by “mismanagement, waste and gamesmanship,” according to a report released Wednesday.

Auditor Mary Hull Caballero found some contractors cheated the system. For example, certified woman-owned firms were observed by city staff without their owners ever present, or with a man – usually the owner’s husband – in the manager’s role. In other cases, white-owned contractors created smaller companies and registered them as “emerging small businesses,” and then subcontracted to themselves. Also, city staff found instances where a certified firm was not doing the actual work, but another contractor’s equipment was on site.

Caballero’s report comes amid a national reckoning on racism. In the building industry, some Black executives such as Andrew Colas of Colas Construction have called on public agencies to do more to support Black-owned firms, saying existing contracting preferences aren’t working.

Caballero, in an interview, said Portland’s Procurement Services never had clear direction and consistent resources from city leaders.

“They set in motion something that was in contradiction from the beginning,” she said. “Council needs to get clear on what it is trying to achieve and how it can do that legally with the level of resources it’s willing to provide to these programs.”

Advocacy groups called on the city to take action to shore up the equity programs.

“The report gives the opportunity to improve the program,” said Nate McCoy, executive director of the National Association of Minority Contractors‘ Oregon chapter.

The 29-page report focused on a group of programs that were started in 2012 to reduce disparities in contracting and boost opportunities for woman-owned, minority-owned and emerging small businesses. Large public contracts often go to major firms that have been around for decades and are typically led by white owners and executives. The audit found that while the programs succeeded in reducing some disparities, they are “unpopular with many key constituents.”

Widespread dissatisfaction stems from mismanagement and legal constraints that give city officials few opportunities to choose contractors based on race, the audit found.

The audit was especially critical of the city’s Prime Contractor Development Program, which is meant to help small contractors grow. The program “benefited few participants and suffered from mismanagement and waste,” the audit found. “Additionally, white-owned firms won most of the contract dollars awarded via the program. The program’s training and technical assistance programs were generally unsuccessful, disorganized and wasteful.”

The Prime Contractor Development Program’s original focus on minority-owned contractors was diluted, in part because of legal concerns, McCoy said.

“The program was always intended to serve minority contractors,” he said. “Politics and risk and legal authority kinds of things come up, so a program that’s intended to help small minority businesses ends up having to lump everything else in.”

Caballero’s office made 16 recommendations for improving the equity programs. Among them were to take steps to prevent bundling, ensure equal access among contractors to project information, and to centralize and formalize outreach to contractors.

The programs stem from a 2011 disparity study that found stark differences in opportunities for minority contractors.

Then in June 2019, in an audit by Caballero’s office of the Portland Building rehabilitation project, the city was criticized for failing to distribute nearly $1 million in funding set aside for minority contractors.

Advocacy groups joined in the auditor’s finding that there’s a perception certain contractors have an advantage via existing relationships with city staff.

“We call for an end to backroom dealings that undermine the words ‘access’ and ‘equity,’” Professional Business Development Group Executive Director Kenechi Onyeagusi stated in a news release. “We call for public officials and city employees to be unafraid to uphold established processes, abide by its own laws and equity commitments to regain public trust.”

The report focused much of its criticism on the city’s Procurement Services – part of the Office of Management and Finance. Others also bear responsibility for making the programs work, McCoy said.

“There has to be a lot more shared responsibility from our electeds, from bureaus, from (project managers),” he said.

NAMC-Oregon supports the Prime Contractor Development Program, but recognizes changes must be made, McCoy said. The group will issue a full-bodied statement in the coming days, he added.

Caballero said the city now has to make up for lost time.

“Council had good intentions,” she said. “They seemed to want to repair historical inequities and didn’t get the job done. There are consequences for people who are in this industry in terms of wealth creation and advancement and opportunity.”

Caballero will present her findings to the City Council, likely at a Sept. 30 meeting. She expects a “rambunctious conversation” regarding the report and its recommendations, she said.

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Since starting 3 Diamond Construction, a small Portland company, in 2014, owners Ofelia Lara and Dionicio Fernandez grew interested in bidding for public projects.

The company at first had tackled mostly small residential projects. That changed when 3 Diamond joined the city’s Prime Contractor Development Program, which coordinator Stacey Drake Edwards got off the ground in 2013. Since joining the program, 3 Diamond has won several city contracts, including work on Lents Park and the Springwater Trail.

“This program helped us,” Lara said. “We had no clue. Thanks to Stacey’s program, we were able to get into those projects.”

The program works to help women-owned, minority-owned and emerging small businesses bid on city contracts valued at $5,000 to $1 million. In fiscal year 2017-18, via the program, 42 contracts totaling $29.3 million were awarded to such firms. That was an increase of $2.3 million from the previous fiscal year.

The PCDP, part of the city’s Procurement Services office, aims to create a roster of contractors with capacity to bid on public projects. Once part of the program, contractors are encouraged to grow so that when they graduate, they can go on to bid on progressively larger contracts.

“The market right now is really hard,” Edwards said. “Everybody is really busy, and because there’s a lot of public projects going on, you’re competing for these small contractors to bid on your projects.”

The PCDP provides ongoing technical assistance to the small, emerging contractors that take part. As obstacles crop up during projects, the city helps contractors work through the issues. That can involve anything such as invoices, project forecasting or foreman certification. A technical assistance officer will visit project sites and sit it on progress meetings.

“One of the things I always say is I’m not teaching the contractors how to do the work; they know how to do that,” Edwards said. “The key is to get them to understand how the city works and how we do things on our end.”

More agencies are turning to alternative contracting methods that don’t simply accept the lowest bid, said Nate McCoy, executive director of the National Association of Minority Contractors-Oregon.

“Agencies are starting to lean more into these conversations, and look at new and innovative procurement policies for (minority-owned business enterprises) at the sub- and (general contractor) level,” he said.

McCoy praised the program’s emphasis on providing on-site technical assistance.

“As a contractor, who has the time to be in workshops instead of running their businesses?” he said.

City projects larger than $1 million are bid in the open market. Some minority-owned contractors have made significant strides in getting those too.

A $27 million project to renovate the entries and interiors at the Oregon Convention Center isn’t one of the city’s. But it is a public project, and Metro chose a team of Colas Construction and Raimore Construction over Hoffman Construction, a larger and more established firm.

“Some of our members who have worked alongside some of the bigger (general contractors) now are beating them out on projects,” McCoy said. “That’s not a new trend, but the fact that a Colas and Raimore (team) is capable of beating out one of our partners in Hoffman is kind of exciting.”

McCoy said the Convention Center contract was a particularly poignant example because the site was once home to a largely African-American neighborhood that was cleared to make way for the development.

Women-owned firms are also playing increasingly visible roles in programs such as the PCDP and groups like NAMC-Oregon. Examples include Chick of All Trades, a company owned by Valerie Solorzano that provides flagging and traffic-control services, and T Edge Construction, owned by Tammy Edgerly.

“We do really look at ourselves as a program that supports building in the current climate with increasing the number of certified firms,” Edwards said.

The PCDP will be accepting applications in November for its next class.

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