City to assist minority-run businesses

With major developments planned for downtown, campaign is launched

Companies too small for big jobs

Government effort's focus is on help with financing, push for joint ventures

July 14, 2002|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

City officials have embarked on a campaign to beef up minority businesses as several large developments promise to bring millions of dollars in contracts to Baltimore during the next decade.

The city is home to a handful of multimillion-dollar, minority-owned contracting and construction businesses, such as Banks Contracting Co. and Mace Electric Co., but most are too small to handle large contracts.

"We don't have that many minority companies with the capacity to do the bigger projects," said City Councilwoman Paula Johnson Branch. "That's because over the years minorities were not sought after to work on the bigger contracts, so they weren't able to grow. They remained stagnant."

Baltimore officials are taking a two-pronged approach to changing that. One initiative is aimed at increasing the size of performance bonds for which small businesses can qualify. A second is a push for minority companies to create joint ventures that would provide them with more capital and bigger work forces.

City officials say the timing is right to expand minority-owned companies. Plans are under way to build extensive biotechnology parks on the east and west sides of towns, and the revitalization of downtown continues to bring more projects to the city.

In addition, Mayor Martin O'Malley began an aggressive campaign last year to increase minority business opportunities in the city.

"What we're going to do is make sure that this is not an impediment - the fact that they may be small or that their finances may not be that great," said Rep. Elijah E. Cummings, a Baltimore Democrat who is working to ensure minority business participation in the $800 million east-side biotech park planned near the Johns Hopkins medical complex. "We don't want that to impede them from getting involved."

City officials and business people acknowledge that bonding - insurance that provides payment if a contractor fails to complete a job as promised - doesn't guarantee that a company will win jobs or qualify for additional bonding, even with more lenient standards.

Persuading minority companies to open up their businesses and turn competitors into partners could also prove difficult, observers say.

"If there's anything we can do to get more work, that's always good," said Pless Jones, vice president of P&J Contracting Co. and president of the Maryland Minority Contractors Association. "But we try to push for getting it on your own. Most of us are hands-on within our company, and it takes a lot of work to get into a joint venture."

To help bond minority companies, the city has signed Washington-based DevCorp Consulting Corp. to a one-year contract, with the option to extend two more years. The company specializes in creating programs for government agencies that give small, disadvantaged companies the tools to compete for contracts.

Along with bonding services, DevCorp offers working capital loans to keep businesses operating while they are waiting to get paid for jobs.

Construction companies buy surety bonds as insurance that they'll complete a job. To get a $1 million bond, a company might pay 1 percent or 2 percent of that amount - $10,000 to $20,000. Smaller companies often can't afford that, or their financial statements don't pass muster with insurance companies that provide the bonds.

"Of course, the problem at issue for the bonding company is what kind of credit risk they're exposed to," said Kenneth Stanton, an assistant finance professor at the University of Baltimore. "If you're talking about a minority business that is small, their credit backing may be quite low. They may pay higher rates or not qualify for bonding."

Bonding companies say they look at a variety of factors when approving bonds, such as how much work a company has done, how much debt a contractor has, net worth, payroll, equipment and reputation. Much emphasis is placed on financing, though.

"They're all important, but I would certainly say that capital is crucial, especially when you're talking about a small, upstarting business," said Connie Lynch, director of government relations for the National Association of Surety Bond Producers. "You really want to know that they have the financial backing to do the job. Or if they have their fingers in a lot of pies, or do they have a lot of unfinished work and therefore unrealized revenue?"

DevCorp puts more emphasis on the technical ability and track record of the company. With backing from the risk and insurance services business Marsh Inc. and other companies, DevCorp can provide surety bonds of up to $3 million. Company officials said its interest rates and fees are competitive with those of the rest of the market.

"Our job is to say, `Look, there's a way for even small companies to get bonding,'" said DevCorp President Carlton Lewis. "It doesn't mean free and easy access to jobs, but it will definitely get you into the game."

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