Chicago's Minority Business Program Failing, Report Says
Chicago - Following numerous investigations uncovering fraud, abuse, and mismanagement in the City's Minority and Women-owned Business Enterprise (MWBE) program, the Inspector General's Office (IGO) conducted a program review to analyze the effectiveness of program administration and how actual participation in the program compares to statistics reported to the City Council and the public.
OFFICE OF THE INSPECTOR GENERAL
City of Chicago
Joseph M. Ferguson
Inspector General
May 20,2010
180 N. Michigan Avenue, Suite 2000
Chicago, Illinois 60601
Telephone: (773) 478-7799
Fax: (773) 478-3949
To the Mayor, Members of the City Council, the City Clerk, the City Treasurer, and the residents
of the City of Chicago:
Enclosed is a review of the City's minority and women-owned business enterprise program.
1. Background
Mayor Harold Washington began an affirmative action program for City contracts in 1985 by
executive order. The minority and women-owned business enterprise (MWBE)! program was
continued through successive mayoral administrations and an ordinance codifying the City's
program into law was ' passed in 1990. The scope of the MWBE program is extremely large.
Since 1991, the City has reported over $9.5 billion in awarded contracts to MWBEs, an average
of over $500 million a year.
2. Summary of Findings
Over the past several years, the IGO has conducted numerous investigations examining fraud,
abuse, and mismanagement in the MWBE program. Recently, the IGO conducted a program
review to analyze how actual participation in the program compares to the participation statistics
that are reported to the City Council and the public.
Our investigations and analysis have revealed broad and pervasive deficiencies in the
administration of the City's MWBE program and that the City cannot determine whether or not
the program is achieving its goals. As a result, the program has been beset by fraud and unlawful
brokers, and MWBE participation is likely far less than the publicly reported participation
statistics. Specifically, the IGO found that:
• Fraud, abuse, and mismanagement are widespread in the MWBE program. Recent
sustained or soon to be sustained IGO investigations into the MWBE program have
involved contractors that have been awarded over $1 billion in City contracts since 2003.
I In the review we use the term "MWBE program" to refer to the City's afftrmative action contracting program and
the term "MWBE(s)" to refer to all firms that participate in the program.
Website: wWw.chicagoinspectorgeneral.org Hotline: 866-IG-TIPLINE (866-448-4754)
• Our analysis of construction contracts that ended in 2008 found that actual payments to
MWBEs and Disadvantaged Business Enterprises (DBEsi were over 15 percent less
(more than $19 million) than the City's publicly reported statistics for the contracts we
reviewed. Were the over-reporting for 2008 applied to the over $2.5 billion in
construction contracts reportedly awarded to MWBEs and DBEs since 1995/ actual
participation in all the City's construction contracts, between 1995 and 2008, has been
$400 million less than the City'S publicly reported participation statistics.
• Non construction contracts comprise the majority (70% of the dollar value) of reported
MWBE participation awarded since 1995. For these contracts, due to the historical lack
of auditing of non-construction participation, the lack of rigor in the auditing process that
was recently put in place, and the prevalence of fraud and abuse in the program, it is
likely that actual participation is also significantly lower in non-construction than the
publicly reported participation.
• Many of the problems in the MWBE program are attributable to the City'S poor
administration of the program. Specifically, the administrative deficiencies include:
o Not collecting, analyzing, or reporting data on actual payments to MWBEs.
o Lack of cooperation between City departments in administering the program.
o Failure to track payments to MWBEs as contracts are performed.
o Mistakes in assessing actual MWBE participation.
o Laxness in determining eligibility for the program.
o Insufficient resources devoted to the program's administration.
The City'S failure to collect all relevant data, its inconsistent application of the program's rules
and regulations, and a lack of cooperation between the user departments and the Department of
Procurement Services (DPS)4 have all contributed to the program's poor administration. Despite
a lawsuit challenging the program's constitutionality and several high-profile scandals involving
the program, these failings have not been corrected. The MWBE program requires continuous
oversight and analysis, yet the City has failed to successfully address the program's problems as
they have arisen.
3. Summary of Recommendations
The failings of the program cannot and should not be blamed on a single person or a single
department, and therefore no single policy change can fix the program. First and foremost, the
City must collect and report data on actual payments to MWBEs. While better data reporting will
help the program better accomplish its goals, the City must also improve the administration of
2 Disadvantaged Business Enterprises (DBEs) refers to a federal affirmative action contracting program and is only
applicable on certain federally-funded contracts.
3 From 1995 through 2004 this figure includes DBE awards. From 2005 through 2008 DBE awards are excluded.
4 DPS was the principal program administrator for much of its history. In October 2009, the Mayor transferred most
aspects of the program administration and oversight to the Office of Compliance. The analysis period for this report
precedes the transfer. However, the problems detailed have not abated since the transfer and, if anything, have
grown worse.
the program. The administration needs to rigorously enforce the program's rules and regulations
and ensure that participants act in good faith. Specifically, the City must:
• Track and report actual payments to MWBEs.
• Increase cooperation between City departments to properly administer the program.
• Require more detailed documentation of payments to MWBEs.
• Consider directly paying subcontractors.
• Clearly define and consistently apply MWBE regulations.
• Increase resources for program administration.
• Increase enforcement of penalties for non-compliance with MWBE commitments.
Going forward, the City must confront the longstanding problems that plague the program,
which is a cornerstone of City economic and social policy. To do this, the City must engage in
rigorous, continuous analysis of how the program is administered and of the program's
effectiveness and there must be a commitment from all parts of City government to the
program's goals, including, most notably, from the user departments that execute the City's
contracts. By doing so, the City will ensure that the program is run effectively and efficiently and
that MWBE participants are receiving all the benefits of the program to which they are entitled.
Respectfully,
Joseph M. Ferguson
Inspector General
City of Chicago
