BUNNELL, Fla. — In a Florida office park a little over an hour north of Orlando, behind the Loping Gopher Tap Room and Hungry Howie’s Pizza & Subs, the state of Massachusetts is trying to meet its goals for hiring minority contractors.
Among the rows of single-door office spaces in the nondescript park is a company called A&M Business Solutions, owned by a Hispanic woman named Agnes Reed and her business partner. The company doesn’t make or install anything; Reed’s three-person team buys plumbing fixtures or safety equipment or computer parts or other products and has them shipped to anybody working on a government contract.
And because of a policy change implemented under Gov. Charlie Baker, every time a white-owned company working on a state-funded contract spends a dollar with A&M Business Solutions, the Massachusetts government gets credit toward its goal of hiring minority-owned businesses.
Most government contracts have some kind of mandate that a portion of the work go to minority-owned companies (with separate goals for veteran-owned or women-owned companies). But an investigation by the GBH News Center for Investigative Reporting found that Massachusetts has redefined compliance with that mandate, so state contractors can meet the goal by paying for goods or services that may have nothing to do with a government contract. And many of the businesses getting paid are outside Massachusetts, are not certified as being minority-owned, or appear to barely exist at all.
Take A&M Business Solutions, for example.
The company’s business model is pretty clear: The homepage of its website offers no information about its products; instead, it says, “It would be our privilege to work with you to meet your minority, woman owned or disabled veteran goals by offering you goods and/or services for your contractual obligations.”
And that’s how a Maryland military supply company met its requirements for minority inclusion in a contract with the Massachusetts Department of Fire Services in 2018.
The company, Federal Resources, won a $400,000 contract with the department to provide robots and other bomb detection and disposal equipment. The contract — like most Massachusetts government contracts — required Federal Resources to give a portion of the work to a state-certified minority-owned business. So at the end of the contract, after most of the money had been spent, Federal Resources paid A&M Business solutions $12,095 — just over the 3% threshold required, according to documents the company filed with the state and GBH News obtained through a public records request. A&M says they sold the company computer equipment. Federal Resources first denied spending any money with A&M, and then stopped responding to requests for an explanation.
The Department of Fire Services then took credit for spending just over $12,000 with a minority-owned business, which rolled into the annual report of how much Massachusetts spent with so-called MBEs.
Each year, Massachusetts sets a goal for how much money state agencies should spend with non-white vendors, and Baker has increased that goal more than once since taking office in 2015. In 2018, the goal was 7% of each agency's budget; for 2019 Baker raised the goal to 8%.
And each year of his tenure, the state has issued a report showing it has exceeded the goal by tens of millions of dollars.
“I would be shocked,” Baker said in January on GBH’s Boston Public Radio, if minority-owned businesses were not getting a larger share of state contracts than when he took office. “We have raised the percent requirement [for minority contracts] every year practically for the past four or five years,” he said.
But there is a reason Baker’s administration appears to be doing so well. Since 2016, the state has inflated the totals by adding hundreds of millions of dollars of “indirect spending,” which includes a broad array of business-to-business relationships between prime contractors and minority-owned businesses and nonprofits. In other words, the state is taking credit not only for its purchases from businesses run by people of color, but for any payments state contractors have made to minority-owned firms, regardless of whether the payments relate to a specific contract.
Baker’s office and the state's Supplier Diversity Office declined requests from GBH News for interviews about this story. But the governor’s office did point out that Baker proposed legislation earlier this year that would allow the state agency that manages most major construction projects — the Division of Capital Asset Management and Maintenance — to require prime contractors to meet specific goals for hiring minority- and women-owned businesses as subcontractors on major projects.
Crediting state agencies for this indirect spending “is not an accurate account of state contracting dollars to minority businesses,” said Reggie Nunnally, who ran the Supplier Diversity Office from 2009 to 2015. “It appears this is an attempt to inflate the MBE and [women-owned business] contract dollars to ensure compliance.”
The SDO is the office that certifies minority businesses for the state and tracks agency spending with these companies. Nunnally said it is easy for the state to confirm direct agency spending; those payments came from state accounts. But he said the state has no process to prove claims by white companies that they hired or paid a minority-owned business.
“Any company could basically say, ‘Look, I spent X amount of dollars with a minority firm,’” Nunnally said, “and how would they know?”
In January, GBH News reported that the inflation-adjusted value of state spending with minority-owned businesses had dropped by about 24% over the past two decades. That calculation was based on including all of the indirect spending the state is now claiming credit for. If that excess category were removed, the inflation-adjusted value of current contracts would be about half what it was in 1998.
The last annual report that Nunnally signed, for fiscal year 2014, declared that the state had provided $230 million in contracts with minority businesses, plus $17 million in subcontracts, for a total of $247 million. Last month, the diversity office issued its 2019 annual report, declaring $283 million in direct contracts and $128 million in "indirect spending," for a grand total of $411 million in state spending with minority-owned businesses.
In 1998, the state claimed credit for $359 million in contracts with minority owned businesses.
The Supplier Diversity Office began giving agencies credit for indirect spending after Baker took office, because, as the office said in a 2015 annual report, state agencies needed the extra credit to meet their goals for spending with minority-owned businesses.
The following year, the office announced that its annual tally would now include “a wide range of business relationships formed with prime contractors, including subcontracting and the use of diverse businesses to supply products and services for general business needs.”
State documents obtained by GBH News offer a glimpse of what this so-called “indirect spending” can include. In a 2018 briefing document, prime contractors were told they could meet their minority inclusion goals by counting janitorial, catering and accounting services provided by a minority business, even if those services were not directly related to an individual state contract. In addition, “paying for your [minority business] partner’s chamber of commerce membership” would count, as would “providing or sponsoring a booth for your [minority business] partner at a trade show.” The briefing adds that donations to minority nonprofits might also count, and that “your company staff volunteer time” may also qualify.
All of these payments are now part of the total the state can claim credit for.
“This does not in any way meet the objective of supplier diversity programs,” said Tanisha Sullivan, president of the NAACP Boston branch. Those programs “are really meant to increase the direct spend dollars with minority-owned businesses, and to include items like chamber fees or donations to community-based organizations really does not speak to the purpose of these programs.”
Dania Francis, professor of economics at UMass Boston, said the state may also be taking credit for business-to-business relationships that already existed — like a caterer or a cleaning service — so there is no reason to assume the state contract created the business opportunity for the minority vendor.
“I think it's unfortunate that the state is getting the benefit of these numbers, looking like, ‘Oh look, there's a lot of increase in the percentage of our budget that's going towards minority-owned businesses,’ when really maybe there's actually not,” Francis said.
And since these relationships were not included in the annual reports in prior years, there is no way to know whether the total value of business flowing to minority-owned firms has actually increased.
The state’s tally of indirect expenses also suffers from flaws far beyond the question of whether the state should be taking credit for computer supplies purchased from A&M Business Solutions in Florida.
Companies that have contracts with state agencies are required to submit annual reports identifying which minority-owned (or women-owned or veteran-owned) businesses they have been working with, and how much they have paid them.
A sampling of these forms reviewed by GBH News demonstrate an array of errors, misstatements, and firms that do not appear to be qualified to be included in the tally.
For example, C&W Facility Services — a division of real estate giant Cushman & Wakefield — which has a contract to provide services for the Massachusetts State House, reported spending $62,000 in fiscal year 2018 with a minority-owned, woman-owned business called Eastern Bag and Paper.
But that company is woman-owned, not minority-owned. Asked about the error, C&W spokesman Michael Boonshaft replied, “We have no comment.”
The American Red Cross, which had a contract with the state Department of Conservation and Recreation, reported spending $63,000 in fiscal year 2018 with a Wareham-based, minority-owned company called MikRon that handles specialty blood processing machines. The company has a Hispanic co-owner, but it is not certified as a minority-owned business by Massachusetts and is not listed in the state database of approved MBEs, which is one of the requirements of the state supplier diversity program.
After being contacted by GBH News, Red Cross spokeswoman Kelly Isenor said the organization reached out to MikRon and was told the company’s “exclusion from the Massachusetts database is an oversight.” MikRon is certified in a federal contracting database and “plans to pursue state certification in Massachusetts as well.” Apparently, nobody from DCR or the Supplier Diversity Office had contacted the Red Cross or MikRon to confirm its status.
Among the minority spending the state claimed credit for in its annual report issued in July: payments to an IT consultant in Alpharetta, Ga., that does not have a website; a New York engineering firm that is not registered as a minority-owned business in Massachusetts; a Malden-based office supply company with a disconnected phone number; and a printing and graphic design firm that provides a Back Bay coworking space as its address.
A spokesman for the Executive Office for Administration and Finance, which oversees the diversity office, said state officials verify the minority business spending and had already identified the multiple errors that GBH brought to their attention. State agencies were not given credit for any payments to minority businesses that could not be verified, the spokesman said. The diversity office also employs investigators who confirm the validity of minority business certifications.
None of this is a problem for A&M Business Solutions and its owner, Agnes Reed. The company is certified as a minority-owned business in Massachusetts and a few other states.
“I'm not breaking the law,” Reed told GBH News. “I'm just doing what is legal. And if they say, hey, you know what, you're a minority, you served our country, you did this, you know, I didn't make it up.”
But Wendell Stemley, emeritus director of the National Association of Minority Contractors, asked: “What good is it doing the citizens and the vendors and suppliers and employees of Massachusetts for you to have millions of dollars of purchases from Florida? That doesn't make any sense.”
To be clear, Massachusetts — via its prime contractor — is taking credit for thousands, not millions, of dollars spent with A&M Business Solutions in Florida. But the state is taking credit for millions of dollars spent with other firms outside the state.
For instance, in 2019 alone, state agencies spent more than $31 million with an Asian American-owned global IT firm called SHI International in Somerset, N.J. That’s more than 10 percent of the state’s total tally of direct contracts with minority-owned businesses that year. SHI does maintain an office in downtown Boston.
In an email to GBH News, the finance office spokesman said the state does not restrict participation to Massachusetts companies because “Some services and products are not offered by in-state firms, a large pool of potential vendors helps to ensure the Commonwealth is receiving the best value, and a broad array of contractors helps to minimize potential shortages of supplies or services, a need that is evident given the COVID-19 environment.”
But Libis Bueno says it is hard to believe that Massachusetts can’t find most of what it needs from in-state companies.
“I find it very difficult to find that no one in the state can meet those requirements that they are looking for,” said Bueno, the CEO of Domitek, a Worcester-based security systems company, and a co-founder of the Latin American Business Organization. “I think that what the state needs to do a little better is to ensure that those companies are hiring local companies from within the state.”
Instead, the money is flowing out of the community, he said. “I see a bunch of trucks from Rhode Island, New Hampshire, Connecticut and even New Jersey doing work right here. Why are we not hiring the people that are putting money back into the community?”
Reed told GBH News she sympathizes with Massachusetts businesses that are not getting the work she is getting, but she makes no apologies for her company. “Do I produce anything? Do I make anything? No. Do I provide a service to companies? Absolutely,” she said. “I am saving that construction company or that school system from having to get three different companies to provide one service. ... They're dealing just with me. And then I'm the one [providing] the candy machines, soda machines, whatever.”
Keith Alex Greenaway, with the Greater New England Minority Supplier Development Council, says it’s OK if the state works with minority firms outside Massachusetts. But he said it is important to partner those companies with local firms to help them grow.
Greenaway, who serves on a Black Advisory Commission that Baker created in 2017, said the state is taking the problem of minority-business growth seriously.
“I am a strong proponent for the Baker administration, because I do believe that he has demonstrated a real commitment to do something about this and make a difference.”
That may be true, but because of the way the state reports minority spending, it is impossible to tell whether minority-owned businesses are actually any better off.
GBH News Center for Investigative Reporting intern Angela Fu contributed to this story.
This story has been updated to point out that Baker has proposed legislation to expand opportunities for minority-owned busineses in major construction projects.