Help, I Didn’t Meet the Project Set-Aside Goals! How Do Contractors Demonstrate Compliance With The CT Set-Aside Program If The Set-Aside Goals Aren’t Met?

by Carolyn A. Young, Esq.

Contractors who bid on public constructions projects in Connecticut face numerous statutory requirements related to affirmative action and set-aside goals for small and minority owned businesses. If the set-aside goals are successfully met, then life goes on happily ever after. But how does a Contractor comply when it is unable to secure competitive bids from qualified small and minority contractors?

The Connecticut Set-Aside Program was enacted to address a legislative determination that there was a “serious need to help small contractors, minority business enterprises, nonprofit organizations, and individuals with disabilities to be considered for and awarded state contracts” for public construction projects. 

Under the Set-Aside program (C.G.S. §4a-60g), public owners are required to set aside 25% of the total value of contracts or portions thereof of public works contracts, and the purchase of goods and services, for award to small contractors (“SBEs”). Of that 25% portion for the SBE set aside, 25% of that (6.25% of the total contract value) must be set aside for award to minority business enterprises, which include entities owned by women and individuals with disabilities (“MBEs”). Hartford, New Haven, and Bridgeport have enacted their own set-aside programs and are currently exempt from the state set-aside program. However, under longstanding federal caselaw, these set-aside “requirements” are supposed to be “goals,” not quotas.

Additionally, per the Affirmative Action statute (C.G.S. §4a-60), contractors who work on state projects must make good faith efforts to employ small and minority business enterprises as subcontractors and suppliers. These good faith efforts are defined as: (1) reasonable initial efforts to comply with statutory or regulatory requirements; and (2) additional or substituted efforts when initial efforts are not sufficient. Determination of good faith efforts includes review of employment and subcontracting policies, patterns, and practices; advertising; recruitment and training; technical assistance activities; and “such other reasonable activities or efforts as the Commission on Human Rights and Opportunities [(“CHRO”)] may prescribethat are designed to ensure participation of SBE and MBEs. 

The CHRO is responsible for reviewing, monitoring, and enforcing equal opportunity, affirmative action, set-aside, and contract compliance laws applicable to contractors (including subcontractors and suppliers to contractors). Although the General Contractor or Construction Manager is ultimately responsible for meeting the set-aside goals on a Project, this responsibility is almost always passed down through flow-down provisions to the various trade contractors.

Contractors who are obligated to make good faith efforts to meet Project set-aside goals must submit a Set-Aside Plan (“SAP”) to the CHRO (generally as part of affirmative action plan) for review within 30 days of bid acceptance. This SAP must include the following information: employment analysis; subcontractor availability analysis; MBE goals and timetables; program goals and timetables; and MBE assistance and innovative programs. The CHRO is required to review the plans within sixty (60) days of receipt from a contractor. In practice, however, this review often takes longer, in some cases longer than the construction project itself. Since circumstances can change over the course of a project, Contractors also are required to submit documentation upon completion of the contract demonstrating whether the set-aside goals were actually met. 

In cases in which the contractors have met or exceeded the set aside goal, the contractor’s “good faith efforts” is not at issue. But there are many situations where despite a contractor’s good faith efforts, the set-aside goals cannot be met. In these situations, it is essential that the contractor understand how the CHRO determines whether the good faith efforts standard has been satisfied—and to tailor its actions accordingly.

In reviewing an SAP, the CHRO examines the procedures used by the contractor to solicit bids, including a review of the trades required, the list of contractors solicited, the location of the project in relation to the subcontractors, and the contractor’s subcontracting policies, patterns, and practices. Factors such as the non-availability of eligible set-aside subcontractors can be considered in evaluating good faith effort. Although a contractor is not required to subcontract work that it normally self-performs, whenever the contractor outsources materials, labor, equipment or other services, good faith efforts should be made to solicit SBE and MBE entities. For projects in which the ability to subcontract is limited, those circumstances should be explained in the SAP.

There is no statutory requirement to use only subcontractors on the DAS certification list. But the CHRO uses solicitation from the list when considering whether “good faith efforts” have been demonstrated and actually states on its website that only contractors certified by the DAS Office of Supplier Diversity are eligible for set-aside contracts. (For CTDOT Projects, entities must be approved under the federal program as a Small Business and/or as a Disadvantaged Business Enterprises (DBE), defined in Title 49 of the Code of Federal Regulations.) 

In order to establish good faith efforts upon CHRO review, contractors are expected to solicit SBEs and MBEs by consulting with at least three (3) sources, one of which should be the DAS Supplier Diversity database. Contractors should solicit at least three (3) subcontractors/bids per trade, material, or service. The CHRO expects solicitations for bids from eligible and appropriate subcontractors, qualified to provide the materials or services. It is crucial that a contractor maintain documentation of its efforts, including detailed records of solicitations and responses from each company solicited. These records should be kept for at least two years after the contract is performed. In situations where there are only a small number of qualified, eligible subcontractors or suppliers for a specialized trade, material, or service, the SAP should clearly explain the specialized nature of the work and demonstrate that despite a reasonable search, there were not a sufficient number of qualified SBEs or MBEs to bid thereon. 

If a contractor fails to submit an acceptable SAP, the CHRO directs the Awarding Agency or Municipality to withhold an additional 2% retainage. This additional 2% can be released upon request if the CHRO fails to review the SAP within 120 days of submission. 

Under current CHRO practice, a contractor is allowed three attempts to revise and resubmit an SAP before the CHRO closes out the submission with a “Disapproved” status. If a contractor has three different SAPs closed out as “Disapproved” in one calendar year, the CHRO can initiate a complaint through its Office of Public Hearings. In that case, a human rights referee (administrative law judge) will determine whether there is non-compliance with the statutes or unlawful discrimination. The human rights referee is authorized to issue orders for various forms of penalties, fines, and other ordered actions, including without limitation the State’s retaining two percent of the total value of the contract and debarment of the contractor from participating in State-funded contracting for two years

Failure to comply with the state Set-Aside program can have serious consequences for contractors who perform public work. Understanding and training employees in how to demonstrate and document “good faith efforts” is essential. If you have had a Set-Aside Plan rejected or closed out as “Disapproved,” contact MKRB for more information about best practices to avoid future penalties.

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