Minority Firms on Local Public Works Projects--Mixed Results

The Local Public Works (LPW) Program was designed to: (1) create private sector employment opportunities in areas of high unemployment through the construction or renovation of useful public facilities, and (2) promote economic recovery by stimulating national and local economies. Congress appropriated $6 billion for the LPW program which was funded in two phases: $2 billion for the first round and $4 billion for the second round. The second round contained a provision requiring that at least 10 percent of the $4 billion be spent with minority firms. GAO was asked to assess the impact of the minority provision on the LPW program and to find out whether implementation of the provision has: (1) delayed the start of construction of public works projects; (2) increased project construction costs; (3) caused problems because some geographic areas lack minority firms; (4) required the use of out-of-state minority firms to comply with the provision; and (5) resulted in establishing minority firms ineligible to participate in the program.

The 10 percent minority provision requiring that at least $400 million of $4 billion of federal funds under the second round of the LPW program be spent with minority firms has resulted in some benefits. It was found that the use of minority firms did not cause appreciable delays to the start of the construction of projects. However, the 10 percent requirement was not without problems: (1) the Economic Development Administration (EDA) used about 25 percent of the $15 million of administrative funds to monitor the minority provision; (2) project construction costs increased when contractors complied with the minority provision; (3) about 48 percent of rural projects and 51 percent of urban projects had difficulty finding minority firms; (4) projects in certain states used out-of-state minority firms extensively; (5) the eligibility of minority firms has been a persistent problem to the EDA; (6) some prime contractors established minority firms to take advantage of the program with no intent of continuing in business after the minority provision lapsed; and (7) some minority firms, unable to obtain working capital or bonding, had difficulties with federal paperwork, and sometimes were unable to meet contractual obligations.

Recommendations

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