The City of Chicago’s set-aside program for minority- and women-owned business has made a lot of headlines over the years but mostly for the wrong reasons because so many contract dollars have been funneled to companies controlled by non-minority males instead of the people it’s supposed to benefit.
That’s a disgraceful debasement of a program launched with the best of intentions—rectifying decades of blatant contract discrimination against blacks, Latinos, Asians and women—and the city often compounded the problem by simply slapping politically connected offenders on the wrist.
That finally changed for the better last month when Mayor Rahm Emanuel permanently banned Windy City Electric Co. from obtaining future city work, a punishment that coincides with a Sun-Times/Better Government Association investigation.
Windy City won millions of dollars in contracts over the years in part by claiming it was owned by women when, according to City Hall, it was actually run by John McMahon and his brother, Anthony, a precinct captain for Ald. Ed Burke (14th).
“I have a zero-tolerance policy when it comes to fraud and abuse of the system,” Emanuel said when he announced the ban. Let’s hope he means it because in the past we’ve had to rely on the feds to drop the hammer.
The poster child for set-aside scams is probably James Duff, a mob-connected buddy of former mayor Rich Daley who went along his merry miscreant way for years until he was finally sentenced in `05 to nine years in federal prison for operating phony front businesses that won more than $100 million in city contracts.
“Fraud, abuse and mismanagement are widespread,” Chicago Inspector General Joseph Ferguson said in a 2010 report on the city’s set-aside program, which has awarded more than $9.5 billion in contracts since 1991, or an average of $525 million a year.
Ferguson’s report didn’t specify how much has gone to phony companies, but he emphasized that rampant fraud “deprives legitimate firms of opportunity and restricts competition by discouraging firms that do not participate in misconduct.”
Thankfully the feds and the IG are still hovering, but it’s ultimately up to Emanuel to keep the zero-tolerance pledge. And one way to do that is with more sunlight.
City Hall recently started tracking payments to some minority- and women-owned subcontractors, which is where much of the fraud occurs because primary contractors are only required to report what they expect to pay the subs, and that’s too opaque for sufficient oversight.
The city has to follow the entire money trail and post the information on the Web so everyone can see where the dollars are flowing. That’ll make it harder to use minority- and women-owned companies as fronts.
Other ways to shore up the program and reduce the scam potential include: Ramping up efforts to collect penalties from companies that flaunt set-aside requirements, committing more time and money to compliance, and conducting more unannounced on-site visits to minority- and women-owned firms to check out the employees and ask some questions.
So there is still a long way to go. But at least the Emanuel administration is finally getting off its “duff” to start setting set-asides straight.
Andy Shaw is President & CEO of the Better Government Association. He can be reached at firstname.lastname@example.org or 312-386-9097.