Barriers Facing Minority- and Women-Owned Businesses in Pennsylvania
Pervasive segregation and discrimination have long prevented many minorities from achieving equal access to education and employment, some would argue throughout much of our country’s history. By the 1950s and early ’60s, it was clear that the mere prohibition of discrimination against minorities was not enough to remedy the cumulative effects of inequity. Calls from community leaders and the public for increased employment and educational opportunities for minorities ultimately succeeded in leading a nationwide effort to pass legislation across the broad spectrum of civil rights.
In the early 1960s, the Kennedy and Johnson administrations issued various executive orders requiring federal agencies to take “affirmative steps” to end discrimination and to consider race, national origin, and sex in their hiring policies. In 1967, during the Johnson administration, the Department of Labor’s Office of Federal Contract Compliance (OFCC) issued a national affirmative action compliance program to be used in metropolitan areas across the country, selecting Cleveland, Philadelphia, San Francisco, and St. Louis as test sites. The program was designed to increase the number of minorities employed as laborers in federal construction projects.
As one of the selected sites, Philadelphia’s program attempted to respond to the underutilization and exclusion of minorities from skilled trades and crafts by setting goals for a “representative number” of minority hires. Based on an assessment of local conditions, OFCC established a target range for minority hires in federally funded construction projects in the Philadelphia metropolitan area. Arthur Fletcher, then assistant secretary of the Labor Department’s Wage and Labor Standards Division, issued a revised Philadelphia Plan in June 1969 requiring bidders on federally assisted construction contracts in excess of $500,000 to submit an acceptable affirmative action program with specific goals for minority manpower utilization.
Between 1969 and 1970, trade associations, contractors, and unions opposed the plan both in Congress and in the courts. Ultimately, however, the Nixon administration and the Labor Department prevailed on both fronts. In early 1970, the Labor Department issued revised regulations extending the Philadelphia Plan’s model of proportional representation in employment by race to all activities and facilities of all federal contractors. Under these regulations, an acceptable affirmative action program included an analysis of underutilization of minorities based on assessment of the minimum population of the minority work force compared with the total work force in the labor area, and a designation of specific goals and timetables to address deficiencies. Monitored by OFCC, contractors on federal projects would not be considered for bid opportunities unless they met the goals specified under the affirmative action program.
The Nixon administration also attempted to strengthen the economic vitality in the minority community. In 1969 and again in 1971, President Nixon issued executive orders directing the secretary of commerce to promote minority business enterprises (MBEs) and to offer financial assistance to public and private organizations to render technical and management assistance to MBEs. Later administrations expanded the scope of assistance to include minority- and women-owned business enterprises (M/WBEs) in government contracting. For instance, the Public Works Employment Act of 1977, enacted under the Carter administration, called for 10 percent of federal funds for public works projects to be used to procure services and products from M/WBEs. Similar programs were developed by state and municipal agencies to help M/WBEs obtain capital, training, bonding, and licensing. By 1989, approximately 234 jurisdictions had an MBE or M/WBE program in place to provide funding and training opportunities, or were setting aside a portion of public contracts for bidding by minority- and women-owned businesses. These programs were thought to be necessary to remedy instances of current and past discrimination against minority businesses and to create new economic strength and competition in the minority community.
The 1980s turned out to be a pivotal decade for affirmative action. The use of race-conscious measures as a means to address discrimination was challenged on many fronts, including the courts. Some members of the public and elected officials openly challenged the use of affirmative action measures to assist minorities. At the same time, court rulings in favor of limiting affirmative action narrowed the scope of race-conscious programs, reaching a critical turning point in 1989 with the U.S. Supreme Court’s City of Richmond v. J.A. Croson Co. decision.
In 1983, the Richmond City Council adopted a minority business utilization plan that required prime contractors in city-awarded construction contracts to subcontract at least 30 percent of the contract dollar amount to M/WBEs. This was thought necessary because of the low number of city contracts awarded to M/WBEs and their small membership in various contractors’ associations. J.A. Croson, a construction contractor, was not awarded the contract because it was not within the city’s set-aside coverage. The company challenged the plan under the 14th Amendment. The High Court struck down the plan. It ruled that a municipality must show a compelling interest to justify a race-based preference adopted as a remedy for identified present or past discrimination in which it engaged or was a passive participant. The Court found that the city had insufficient evidence to show that it or any prime contractors had intentionally discriminated against M/WBE subcontractors.
Since then, the Croson decision has been interpreted as offering the following guidelines for state and local set-aside programs:
State and local governments may act to remedy direct, as well as indirect, contract discrimination for which they are responsible. However, evidence of general societal discrimination or of past discrimination in an entire industry is not enough to justify racial classifications.
Finding discrimination in one market or against one minority group does not permit an assumption that discrimination exists in all markets or against all such groups. The proper test of contract discrimination is whether qualified, willing, and able minority firms that could perform a particular service are underutilized statistically by state and local governments or their prime contractors.
If the state or local government can show it has a compelling government interest, for example, evidence of past discrimination against a particular minority group, then narrowly tailored race-based remedies can be used.
The Croson guidelines resulted in municipalities’ commissioning “disparity studies” to evaluate their set-aside programs for statistical disparities and evidence of discrimination in anticipation of legal challenges to the programs. The studies usually consisted of a historical context as well as anecdotal evidence of discrimination. To determine whether disparity existed, these studies compared the number of municipal contracts awarded to minority and nonminority firms to determine whether minority firms received a disproportionately smaller share of awards (or payments based on existing contracts) in relation to their representation in the industries studied.
As was true for many other municipalities, the Croson decision significantly affected Philadelphia’s affirmative action efforts. In setting numeric goals, the city’s pre-Croson plan was designed to increase minority-, disabled-, and women-owned business participation in certain city contracts, in order to redress discrimination and perceived inequitable distribution of public contracts. The plan mandated that certain contracts with the city include goals for a specific percentage of business set-asides for M/WBEs. The city also created a sheltered market by setting aside certain contracts for bidding exclusively by certified M/WBEs. However, soon after the Croson decision, nine contractors’ associations successfully challenged the constitutionality of the city’s set-aside program, alleging that it did not sufficiently demonstrate past discrimination in contracting as required under the Croson standards. After a series of appeals, the city was permanently enjoined from administering its program to public works contracts, preventing it from reserving a percentage of business to M/WBEs in city contracting. The city continued to apply the program to professional services contracts until the ordinance’s sunset in 1998. (For details, see section titled “Contracting with the City of Philadelphia” in chapter 2.)
The Pennsylvania Advisory Committee’s Project
The U.S. Commission on Civil Rights and its advisory committees have had a longstanding interest in federal, state, and municipal affirmative action initiatives. At both the national and local levels, the Commission has monitored programs relating to equal employment, union membership for minority workers, and efforts to enhance economic opportunities of minority and women business owners, publishing reports on such topics as affirmative action at law and medical schools, business set-asides, equal employment opportunity, and regulatory obstacles faced by minority entrepreneurs.
In April 1995, the Pennsylvania Advisory Committee selected affirmative action as its project topic, proposing to conduct a review of the Philadelphia Plan, its role in the history of affirmative action, and its overall effectiveness in the Philadelphia area construction industry. As it began collecting historical information on the plan’s development, the Committee soon discovered that although the plan played an integral part in the history of minority employment in the city, specific data necessary for analyzing employment trends and assessing the plan’s effectiveness were difficult or impossible to obtain. In order to narrow the project’s scope, the Committee held a series of planning meetings in 1996 and 1997 with affirmative action specialists and community organization representatives. Through these meetings and related information gathering, the Committee learned the following:
As of 1997 (the most recent economic census data from the U.S. Department of Commerce), there were 50,242 minority-owned firms in Pennsylvania, employing almost 79,000 employees. The Philadelphia metropolitan area ranked fifth largest nationwide for women-owned firms, according to a 1996 survey, and seventh nationwide for new business starts in 1995. In 1998, there were 140,000 self-employed women, representing 32.6 percent of the total self-employment in Pennsylvania.
Despite progress (both nationwide and in Pennsylvania), barriers still exist that limit the inclusion of M/WBEs in the national and local economy. Minorities continue to experience problems establishing and maintaining a business and participating fully in business opportunities, which may be due to discriminatory treatment.
As a result of the Supreme Court’s Croson decision, some state and local programs have been dismantled or changed to such an extent as to be insufficient to help M/WBEs establish a foothold in their respective markets.
Based on this information, in June 1998 the Committee decided to reframe its project scope to examine difficulties M/WBEs faced in the marketplace as well as the status of Pennsylvania’s (and Philadelphia’s) efforts to assist these firms. More specifically, the project was to:
identify existing barriers M/WBEs encounter to full participation and inclusion in business opportunities;
identify and evaluate, in light of the Croson decision, state and local efforts (as well as private measures) to increase inclusion of both minority workers and minority business enterprises in contracting opportunities; and
identify projects that have succeeded in utilizing a high percentage of minority- and women-owned firms that could serve as models for others.
As part of its planning activities, the Committee collected background information on state and city of Philadelphia M/WBE programs; reviewed federal, state, and local legislative guidelines and standards regarding these programs; and identified appropriate government officials, M/WBE owners, and community organization representatives who had pertinent information.
Guided by this background information, the Advisory Committee held a daylong forum on January 14, 1999, in Philadelphia, inviting Philadelphia Mayor Edward Rendell, State Representative Andrew Carn, local government officials, industry analysts, NAACP representatives, minority and women business owners, union leaders, and large contractor representatives. At the forum, panelists and members of the public discussed impediments to M/WBEs’ ability to engage in business opportunities in Pennsylvania as well as details on how state and local programs could better assist these firms. To supplement its inquiry, the Committee sought additional information from those unable to attend the January forum. In April 1999, the Committee held a briefing meeting with representatives from Kvaerner Philadelphia Shipyard Inc., a major industrial firm in Philadelphia, and the General Building Contractors Association, a construction industry trade group involved in the case challenging the city of Philadelphia’s set-aside program. These representatives reviewed their organizations’ efforts to increase M/WBE participation. The Philadelphia Building Trades Union was also invited to attend both the January forum and the April planning meeting, but declined the Committee’s invitation and chose not to submit written remarks to the Committee. The Committee also met with representatives from the city attorney’s office and the Minority Business Enterprise Council (see chapter 2).
Based on forum presentations and subsequent follow-up research, the report provides the following information in six chapters:
An overview of how M/WBEs have fared in contract opportunities throughout the state and city of Philadelphia, presenting M/WBE participation data for both state and city contracts. It also notes monitoring difficulties and gaps in reporting data that make it difficult to interpret minority participation trends or provide meaningful comparisons between M/WBEs and nonminority firms (chapter 1).
A description of how state and local agencies acquire supplies and services from M/WBEs and nonminority firms, including a description of the contracting procedures used by state agencies. It also provides an overview of the function, role, and staffing of four units within the Bureau of Contract Administration and Business Development, the primary state agency certifying M/WBE firms and monitoring their utilization, as well as other state offices within the governor’s office. In addition, this chapter examines three topics: legal developments after the establishment of Philadelphia’s set-aside program, disparity studies conducted to determine the level of discrimination in city contracting, and the efforts of the Minority Business Enterprise Council to assist M/WBEs (chapter 2).
A summary of concerns reported by M/WBEs and community organizations (chapter 3).
A discussion of three exemplary projects to determine ways they were able to overcome barriers and utilize a high number of M/WBEs (chapter 4).
A description of three recent developments at the state and local levels: the redevelopment of the Philadelphia naval shipyard, Pittsburgh stadium construction, and a disparity analysis by the city of Pittsburgh (chapter 5).
Conclusions and recommendations (chapter 6).
Joseph F. Fulton, “Equal Employment Opportunity in the Construction
Industry: The Philadelphia Plan, with Related Documents,” Legislative
Reference Service, March 1970, p. 6.
Hugh Davis Graham, The Civil Rights
Era, Origins and Development of National Policy 1960–1972 (Oxford
University Press, 1990), p. 327.
Fletcher also served as chairperson of the U.S. Commission on Civil Rights
from 1990 to 1993.
Fulton, “Equal Employment
Opportunity in the Construction Industry,” p. 9.
One example occurred in March 1970, when a federal district judge in
Pennsylvania dismissed a suit filed against the Philadelphia Plan. See
Graham, The Civil Rights Era,
Ibid. That same year, Pittsburgh was also selected to implement an
affirmative action policy for the construction industry.
Graham, The Civil Rights Era,
See U.S. Commission on Civil Rights, “Federal Affirmative Action
Programs and Policies,” staff briefing paper, November 1995, p. 17,
referencing Executive Orders 11458 and 11625.
George R. LaNoue, Minority Business Programs and Disparity Studies;
Responding to the Supreme Court’s Mandate in City of Richmond v. Croson (National League of Cities, 1994), p. 5.
Ibid., pp. 6–7.
488 U.S. 469 (1989). A later case, Adarand Constructors Inc. v. Pena, 515
U.S. 200 (1995), is frequently cited along with Croson. Adarand
applies the Croson decision to federal racial classifications, which,
like those of a state, must be narrowly tailored to meet a compelling
Id. at 477–88.
Id. at 480.
Id. at 482–84.
Id. at 507–11.
Id. at 469–70.
“[I]f the city could identify past discrimination in the local
construction industry with the particularity required by the Equal
Protection Clause, it would have the power to adopt race-based legislation
designed to eradicate the effects of that discrimination.” Croson,
488 U.S. at 472.
“A generalized assertion that there has been past discrimination in the
city’s construction industry cannot justify the use of an unyielding
racial quota, since it provides no guidance for the city’s legislative
body to determine the precise scope of the injury it seeks to remedy and
would allow race-based decision-making essentially limitless in scope and
duration.” Croson, 488 U.S. at
“Reliance on the disparity between the number of prime contracts awarded
to minority businesses and the city’s minority population is also
misplaced, since the proper statistical evaluation would compare the
percentage of MBE’s in the relevant market that are qualified to undertake
city subcontracting work with percentage of total city construction dollars
that are presently awarded to minority subcontractors, neither of which is
known to the city.” Croson, 488
U.S. at 470–71.
 While the opinion of the Court as voiced by Judge O’Connor was that race-based measures could be used to remedy past discrimination if there was evidence of past discrimination, the Court was quick to say that even in the absence of evidence of discrimination, the city could use nonracial-based remedies. Indeed, the Court listed several examples:
“Even in the absence of evidence of discrimination in the local construction industry, the city has at its disposal an array of race-neutral devices to increase the accessibility of city contracting opportunities to small entrepreneurs of all races who have suffered the effects of past societal discrimination, including simplification of bidding procedures, relaxation of bonding requirements, training, financial aid, elimination or modification of formal barriers caused by bureaucratic inertia, and the prohibition of discrimination in the provision of credit or bonding by local suppliers and banks.” Croson, 488 U.S. at 473.
In Croson, the
Court simply maintained, despite that only 0.67 percent of the prime
contractors were awarded to minority-owned construction companies, that
there was no evidence of past discrimination in the construction business. See
LaNoue, Minority Business Programs and Disparity Studies, p. 5.
LaNoue, Minority Business Programs and Disparity Studies, p. 5.
Michelle D. Flamer, senior attorney, City of Philadelphia Law Department,
written comments to the Pennsylvania Advisory Committee regarding draft
report, submitted at the Committee’s Aug. 17, 2000, planning meeting
(hereafter cited as Flamer Comments).
The Urban Institute, Do Minority-Owned Businesses Get a Fair Share of
Government Contracts? 1997, p. 9.
“By October 1993, more than 65 state and local jurisdictions had completed
or commissioned disparity studies. . .
.” LaNoue, Minority Business Programs and Disparity Studies,
Some of the Commission’s publications on these topics include Statement
on Affirmative Action for Equal Employment Opportunities, 1973; Toward
Equal Educational Opportunity: Affirmative Admissions Programs at Law and
Medical Schools, clearinghouse publication 55, 1978; Affirmative Action in the 1980’s: Dismantling the Process of
Discrimination, clearinghouse publication 70, 1981; Selected
Affirmative Action Topics in Employment and Business Set-Asides, vol. 2,
Mar. 6–7, 1985; Report of the United
States Commission on Civil Rights on the Civil Rights Act of 1990, July
1990; Constructing Denver’s New
Airport: Are Minorities and Women Benefiting? clearinghouse publication
97, July 1992; Enforcement of Equal
Employment and Economic Opportunity Laws and Programs to Federally Assisted
Transportation Projects, 1993; Federal
Affirmative Action Programs and Policies, staff briefing paper, November
1995; Briefing on Civil Rights
Implications of Regulatory Obstacles Confronting Minority Entrepreneurs,
Executive Summary, Sept. 5, 1997.
The Committee also learned that across the country, the number of businesses
owned by minorities and women had increased substantially, generating
tremendous revenue in certain communities. Between 1987 and 1992, the number
of minority-owned businesses increased 62 percent, to 2,149,184
minority-owned firms in 1992 generating $210 billion in receipts. This
compares with an increase of 26 percent for all U.S. firms during the same
period. In 1994, women-owned firms represented 32.7 percent of all U.S.
businesses. In summarizing the characteristics of 1,965,565 of the total
number of minority businesses (2,149,184) surveyed, the U.S. Census Bureau
found, “African American women owned
the largest share (39 percent or 277,246) of firms owned by minority women,
while Hispanic men owned the largest share (42 percent or 525,330) of firms
owned by minority men. . . . Firms owned by non-Hispanic white men had the
highest average receipts with $250,000. Asian Pacific Islander, American
Indian, and Alaska Native men and women firms had average receipts of
$188,000 and $119,000, respectively. These groups were followed by
non-Hispanic white women-owned firms with $115,000, Hispanic men with
$106,000, Hispanic women with $70,000, African American men with $69,000,
and African American women with $31,000.” U.S. Department of
Commerce, Bureau of the Census, “Number of Minority-Owned Businesses and Revenues Increase Substantially
Between 1987 and 1992,” press release, Nov. 18, 1996. See also
U.S. House of Representatives, Committee on Small Business, “Small
Business Facts,” accessed at <www/house.gov/smbiz/facts/#womenandminorities>.
U.S. Department of Commerce, Bureau of the Census, 1997 Economic Census,
Minority- and Women-Owned Businesses—Pennsylvania, accessed at
U.S. Department of Commerce, Bureau of the Census, “Number of
Minority-Owned Businesses and Revenues Increase Substantially Between 1987
and 1992,” press release, Nov. 18, 1996; National Foundation for
Women Business Owners, “1996
Facts on Women-Owned Businesses: Trends in the Top 50 Metropolitan Areas,”
press release, 1997.
U.S. Small Business Administration, Office of Advocacy, 1999 Small
Business Profile: Pennsylvania, p. 1.
Additional barriers include limited access to capital, difficulties
obtaining loans to start and maintain a business, regulations imposing
qualifications or costs that bar entry into an industry, and arbitrary
licensing and training requirements imposed by government entities. As
background, see U.S. Commission on Civil Rights, Briefing
on Civil Rights Implications of Regulatory Obstacles Confronting Minority
Entrepreneurs, Executive Summary, Sept. 5, 1997.
 A list of panelists participating in the forum is provided in appendix 1.