With all the recent development enhancing Central Ohio it would seem that there should be ample commercial construction project bids up for grabs for both general contractors and smaller subcontractors. Larger construction firms have shown the willingness to work with smaller contracting companies on projects, spreading the profits around, and enabling smaller, local companies to receive their “piece of the pie,” which stimulates job growth at the local level.
However, upon further examination, you may be surprised to learn that the number of small subcontractors, most notably minority- and female-owned, have decreased steadily since 2000. While there is plenty of work to go around, made evident by the massive number of development projects, smaller subcontractors haven’t been able to take advantage of the growing number of construction opportunities due to one large barrier: lack of short-term working capital to take on large-scale projects. This barrier has a disproportionate impact on small, minority-owned firms as bank financing is often out of their reach.
“We’ve seen the amount of local [subcontractor] companies decline at an alarming rate over the last 15 years,” said Nancy Tidwell, owner of NRT & Associates, a public affairs and consulting firm that specializes in assisting construction managers and owners in maximizing the inclusion of minority, female and disadvantaged businesses on major public and private construction projects throughout Central Ohio. “They are not receiving the equal opportunity to perform on these projects and very rarely is it due to the company’s ability to do the work.”
Tidwell reiterates that the main barrier is having sufficient working capital upfront to support the larger projects. Often times, general contractors will not pay smaller subcontractors until anywhere from 60-90 days after the work is started. General contractors are required by law to pay their subcontractors within 10 days after they receive payment. However, with no defined law requiring owners — those who oversee the entire project — to pay the general contractors at the onset of the project, often times the subcontractor is the first to suffer and suffer the most dramatically.
Kathy Tatum, owner of local subcontractor company, Tatum Landscaping & Lawn Care, expressed why the delay in payment creates an inhibiting burden on smaller construction companies.
“Regardless of when we receive our first payment, I still have employees to pay throughout the entire project,” Tatum notes. “Prevailing wages can be as high as $35 an hour and you must make payroll each week. If you haven’t budgeted for that, you can easily drive yourself out of business quickly.”
This “chicken-egg” payment dilemma has prevented many subcontractors from extending bids on large-scale projects. While the scope of the work may be within the company’s ability to deliver the project on time, the financial burden proves too daunting.
ECDI has begun to combat this problem through a pilot that extends Minority Business Enterprises (MBEs) a line of credit loan, which they can utilize to provide payment to their workers in the absence of receiving their payment from the general contractors. ECDI anticipates this will ultimately result in business expansion and additional small business capitalization to support this growth.
Tatum was one of the first to take advantage of this innovative loan package, which allowed her to complete a project attached to the renovation of the Columbus Metropolitan Library, which was awarded to her through Turner Construction, one of Central Ohio’s largest commercial construction companies via Columbus Business First’s 2014-2015 Book of Lists.
“With ECDI’s loan, I was able to hire more workers and finish the job ahead of our deadline,” Tatum said. “Without it, it would’ve been very difficult to deliver the project on time. You’re only as good as your last project… if you fail once, the larger firms won’t likely award you future projects. ECDI was vital in maintaining our reputation.”
By partnering with other small business advocates like NRT & Associates, ECDI hopes to see an increase in the amount of loans provided to smaller contractors in the future. Tidwell has complete faith in Central Ohio’s ability to support contractors of all shapes and sizes.
“There are other programs around the country that help with mobilization and capital funding…there’s no reason why we shouldn’t be able to do it, especially considering the growth Columbus has seen,” Tidwell reiterates. “We need to have a competitive market with more people involved. Supporting the small businesses is what keeps our local economy healthy.”
— ECDI plans to grow this program in upcoming years, and is in the process of engaging with funders to this end. Phases 2 and 3 will consider industry-specific Technical Assistance and Incubation Services. This program fits squarely within ECDI’s mission and purpose to serve the under and unbanked populations. ECDI continues to explore innovative small business growth avenues by, “Investing in people to create measurable and enduring social and economic change.” —
For more information on the robust services ECDI and the Food Fort provide small businesses and budding entrepreneurs, visit ecdi.org.
Photos by Randi Walle.