Making the Grade

Making the Grade 2014

October 17, 2014

New York City is home to some 305,000 women-owned firms and 403,000 minority-owned firms – by far the largest and most diverse clustering of such businesses in the United States.  Yet despite the importance of minority and women-owned business enterprises (M/WBEs) to New York City’s economy and targeted government efforts to support their growth, these businesses continue to receive a disappointingly small share of City government procurement contracts.

Each year, New York City spends billions of taxpayer dollars to purchase goods and services – everything from office supplies and heavy machinery to professional services and food for the City’s 1.1 million school children. However, in Fiscal Year 2014, only 3.9 percent of the City’s $17.8 billion procurement budget went to M/WBEs, a slight increase from the 2.7 percent share in Fiscal Year 2013 but a decline from the already small 5 percent share achieved in Fiscal Year 2012.

This is bad news for both taxpayers and our economy. A robust M/WBE program not only makes government more efficient for taxpayers by increasing competition in procurement, but also helps to foster an inclusive, competitive economy of shared prosperity throughout the five boroughs. Minority and women-owned business enterprises are crucial job engines in communities of color, and are also an increasingly important component of the city’s overall economic future.

In an effort to increase transparency and boost agency performance around M/WBE spending, New York City Comptroller Scott M. Stringer is introducing “Making the Grade,” an annual review that will analyze and grade City mayoral agencies based on their M/WBE spending in the prior fiscal year. It is intended as a diagnostic tool for agencies to measure their success in diversifying vendors using the framework of Local Law 1 of 2013 (“LL 1”), a law that updated M/WBE participation goals for certain procurements by mayoral agencies as of July 1, 2013 and set new goals in two additional industry sectors.

Unlike LL 1, these grades are based not on contracts awarded by City agencies, but on actual spending processed through the City’s centralized Financial Management System (FMS). This is an important distinction because some contracts extend over multiple years and actual dollars spent can change throughout the life of a project. Thus, while LL 1 compliance reports are generated based on the value of registered contracts signed with vendors (i.e. an agency’s projected spending), it is critically important to track actual dollars spent in order to measure the true impact on businesses.

This report assigns grades to 31 mayoral agencies and the Comptroller’s Office. To calculate each grade, the Office of the Comptroller relied on information entered into FMS by agency staff. The Fiscal Year 2014 spending data for each agency was compared against the LL 1 citywide contracting participation goals for M/WBEs. A full description of the methodology is available in Appendix B.

The results are stark: only two agencies scored a B, nine agencies received a C, and 21 of the 32 received either D’s or F’s. Overall, the Citywide grade of D is a reflection of the failure of the City to achieve its M/WBE participation goals. A list of agency grades is available on page 5, and individual agency grade sheets appear in Appendix A.

The primary goal of this first-ever series of agency letter grades for M/WBE procurement is to encourage agencies to boost their M/WBE spending. However, this report also recommends a series of broader improvements to the City’s M/WBE program, including:

  • Expanding the Promise of Local Law 1: While LL 1 represents a significant step in improving the City’s M/WBE program, the “next generation” of the program could do even more to boost these businesses. Enhancements could include:
    • Boosting the number of agencies required to prepare and submit M/WBE utilization plans beyond those that procure over $5 million annually;
    • Expanding certification efforts for the Emerging Business Enterprise (EBE) program which promotes city contracting opportunities for socially and economically disadvantaged individuals, and documenting any obstacles to and recommendations for increasing participation;
    • Requiring enhanced training for M/WBE officers to support their successful implementation of LL 1 goals and/or compliance with the Annual Agency M/WBE Utilization Plan, if applicable.
  • Exploring “Tier II” Spending: To expand opportunities for M/WBEs, the City could consider expanding the program to track M/WBE spending further down the supply chain of vendors (also known as “Tier II” spending).
  • Increasing Transparency: Most mayoral agencies have no specific information for or about M/WBEs on their websites. Agencies should be required to:
    • Disclose their spending with M/WBEs in real terms and as a percentage of total supplier spending;
    • Publish Annual Agency M/WBE Utilization Plans online, for agencies that are required to create and submit these plans;
    • Create M/WBE programs and issue annual progress reports, for agencies that are not required to submit annual utilization plans; and
    • Make information relevant to M/WBEs available on their website, including how to apply for certification as an M/WBE and how to obtain information about procurement opportunities.
  • Improving Data Entry: Agencies very often fail to “tag” M/WBE contracts appropriately, making it difficult, if not impossible, to accurately track them. Agencies must redouble efforts to appropriately identify M/WBE contracts so existing spending can be tracked more effectively, thereby increasing the level of transparency and accountability.

Next year’s “Making the Grade” report will acknowledge progress made by agencies in adopting the recommendations above.

In addition to making recommendations for agencies across City government, Comptroller Stringer has established a steering committee within the Comptroller’s Office to track and evaluate M/WBE spending and establish goals for the Office in line with Local Law 1’s citywide participation goals. The Office will also embark on a series of reforms to its procurement processes that will focus on boosting outreach to M/WBEs and EBEs and identifying potential obstacles to their success.