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Set-Aside Programs Challenge Contractors
BOARDMAN, Ohio -- While in agreement with the goals of set-asides in government projects, commercial contractors participating in the Construction Industry Roundtable hosted by The Business Journal say such programs leave them out in the cold.
Without certification as an 8(a) disadvantaged business, ownership by a woman, member of a minority group or military veteran, or location within a federal HUBZone, they report sometimes they can even submit a bid.
“As a company we appreciate what the goal is intended to be,” said Jim Breese, president of Jack Gibson Construction Co., Warren, but he questions the approach.
Breese says his company used to do a lot of work at the Youngstown Air Reserve Station in Vienna Township. “This is prior to when you had to be certified as a veteran-owned company,” he said. The company’s founder, Jack Gibson, is a service-disabled veteran but because of a technicality wasn’t receiving a paycheck from the company at the time it was reviewed for work and could not get certified to bid.
“When you talk about set-asides, set-asides [are] hurting us because we can’t bid on that type of work,” he remarked.
“There’s some downfalls to the set-asides,” agreed Joe DeSalvo, executive vice president of DeSalvo Construction Co., Hubbard. Like Breese, DeSalvo reports his company also once did a lot of work at the air base. Although his father, the president of the company, is an Army veteran, DeSalvo said the firm couldn’t get qualified as a veteran-owned business.
Paul Johnson, president of Adolph Johnson and Son Co. in Mineral Ridge, says his firm has also encountered the same situation, the air base being the best local example of several projects where if a firm isn’t 8(a) it can’t be considered. The last project Johnson’s company did at the airbase was as a subcontractor to an 8(a) firm. “It’s a very lengthy process to become certified but once you do become certified it opens up a lot of opportunities,” he said.
“If they really want to accomplish something meaningful, I think wholesale change is called for in the way they’re going about it,” he said. Rather than setting aside a certain amount of the money from a project for disadvantaged firms, the focus should be on developing “good workers and business owners who could participate on a competent basis in our industry,” he said.
“You are either making a best-faith effort to meet the goals and document it or hiring a firm that is actually a broker that goes out and brings in [women-owned enterprise and minority-owned enterprise] firms to work under their umbrella. So it makes things challenging at times,” added Greg Koledin, president and CEO of Wesex Construction in West Middlesex, Pa. He also noted that some funding sources for private projects have “strings attached” as well.
At the state level, what at one time were termed set-asides have since been established as goals for disadvantaged contractors and suppliers on projects, reports Kevin Reilly, executive vice president of the Builders Association of Eastern Ohio and Western Pennsylvania. “Before you had those hard numbers,” he said. A contractor unable to meet those goals must document that a “good faith effort” was made “as to what was done to try to meet those goals,” he explained.
Some contractors acknowledged the possibility of sham companies with a woman or minority as the owner set up just to secure government contracts only to have the work done by other firms. If those companies had to compete “out on the street” with companies including those represented at the roundtable, “they would not be very successful,” DeSalvo said.
Overall the contractors reported an improved environment.
“Business is better than it has been,” Johnson said. “Everyone here would agree the construction industry went through a rough period during the Great Recession but we see things picking up. It’s not a boom but we’re doing better.”
Last year was better than 2012, but Gibson’s Breese said his company’s backlog is the lowest in its 30-year history, in part because the business is so competitive now.
Man-hours for the construction trades were down “a little bit” in 2013 but still at a “fairly good level,” said John Watkins, labor relations director for The Builders. Man-hours last year were down probably 10% from 2012, which had a lot of work related to Vallourec Star’s new pipe mill.
DeSalvo reported his company has an eight-month backlog of projects, representing a “significant turnaround” from what the industry saw in the 2009-2011 period, which he characterized as “pretty lean years.” Echoing Breese, the environment is competitive, he said, with volumes up but margins down.
The past two years were both good for Wesex, Koledin said, and the outlook is good. “We’ve got some pretty good projects in the pipeline now," he said.
See the Mid-March edition of The Business Journal for the full Construction Industry Roundtable.
Copyright 2014 The Business Journal, Youngstown, Ohio.
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