The annual MEDWeek event helps minority-owned businesses find lucrative opportunities

Although his business is just about five years old, Kevin E. Smith, president of KES & Associates, a Baltimore-based construction firm, has attended enough conferences to know that often the most valuable thing one leaves with is the ubiquitous sponsor-branded nylon bag. Still, he signed up for three mentor-protégé matchmaking sessions sponsored by the Small Business Administration at this week’s MEDWeek conference with the hope of starting a relationship that could help his business grow.

SBA’s mentor-protégé program enables large companies to provide a variety of assistance to 8(a) firms, such as technical, management and financial assistance. Ideally, the larger concerns also will offer subcontracting and joint venture opportunities.

Much like a social speed dating event, businesses participating in Monday’s matchmaking session were given just 20 minutes to discover whether they might have a future together. Smith, who has won two federal contracts on his own, is looking for a partner that can provide both the access and capacity that his firm needs to go after larger contracts.

“With a mentor, you can increase your bonding capacity overall to perform larger contracts,” he said. “It’s the capacity that’s at issue. This is a tough economy and getting a line of credit or financing is difficult. Mentors that have been in business for a while have that set up.” In addition, he says, small firms are forced to compete in the federal marketplace with larger firms that have greater access to lines of credit and other financing streams, making it more difficult for people like him to get their feet in the door. Smith met with two promising prospects and immediately scheduled a follow-up meeting with one.

Surprisingly, mentor firm Hammerman & Gainer Inc. was less successful in finding a match. The Louisiana-based firm is the nation’s largest minority-owned claims support firm and played a big role in the claims process for victims of hurricanes Katrina and Rita. The firm is hoping to work with BP claims czar Kenneth Feinberg.

Albert White, a senior vice president at the firm, says there’s a serious lack of minority-owned firms with relevant claims experience.

“We’re bidding for a Health and Human Services contract and looking for a subcontractor. Because the project is an 8(a) set-aside, 51% would go to the 8(a), so [a prospective protégé] would have picked up that kind of opportunity,” White lamented. “HHS has stated that it’s having a difficult time finding small firms and 8(a) firms that can participate in their contracting arena right now. They’re looking, but can’t find them.”

Up Next: Export 101 — MED Week focuses on export basics and introduces entrepreneurs to the resources they need to start selling products and services overseas, with a special emphasis on doing business in Africa.

Based on the grassroots organization’s findings as of Dec. 1, 2009, of the $163.8 million in contracts awarded directly to firms by the U.S. Department of Transportation and Federal Highway Administration, $16.8 million went to minority-owned businesses, $9.7 million to women-owned businesses, $4.7 million to Hispanic-owned businesses and $0 to black-owned businesses. The group used data from the Federal Procurement Data System’s Federal Stimulus Contracting Report.

It is an admittedly small sampling of stimulus funding, said Transportation Equity Network executive director Laura Barrett, “But we think we see some trends around how the money has been allocated mostly to white-owned businesses. We feel that minority contractors are being left out based on anecdotal reports, and the numbers we were able to get from the procurement data system back up what we’ve been hearing from the field.”

The DOT disagrees. The agency contends that the data pool used by TEN is too small to be considered representative. In an e-mail message, DOT spokesperson Olivia Alair said that as of Dec. 11, 2009, $986 million dollars in stimulus funds have been committed to Disadvantaged Business Enterprises (DBEs) for highway projects and that the agency has awarded $32 million to minority-owned firms in direct federal contracts. She could not say, however, how many of them are black.

“Minority-owned firms have to be certified at the state level to qualify as DBEs, so we do not have national data on the percentage of DBEs that are minority-owned, broken out by race or ethnicity,” wrote Alair.

She noted that DOT has engaged in and encouraged extensive outreach to black firms. The agency has launched bonding assistance and short-term lending programs and has participated in several events that target women and minorities to highlight stimulus opportunities. In addition, in December Transportation Secretary Ray LaHood sent a letter to the nation’s 50 governors urging them to “take advantage of existing equal opportunity programs and resources and to create innovative strategies to provide opportunities for the underrepresented.”

Richard Copeland, president and CEO of THOR Construction Inc. in Minneapolis (No. 48 on the BE100s Industrial/Service Companies list with $103 million in revenues) and past president of the National Association of Minority Contractors said that efforts to include black firms in stimulus projects vary from state to state and that discriminatory practices continue to be pervasive. He believes that there needs to be a national mandate regarding inclusion to ensure that all states meet their numeric goals and sanctions when they don’t.

“We’re being bypassed by a ‘good old boy’ network that’s gobbling up the stimulus money that’s supposed to help the neediest and most fragile businesses,” said Copeland. “Black contractors are going out of business and laying off people at an alarming rate.”

Copeland, Barrett, and several organizations affiliated with TEN plan to drive that message home during a briefing with lawmakers on Capitol Hill on Jan. 27.

“When someone is an employee, their employer pays half of their payment for Social Security taxes and other expenses,” says Elaine “Laney” Johnson, president of Financial Business Solutions in Doylestown, Pennsylvania.  “But when they receive income as an independent contractor, they are in fact the employer and employee, so they have to pay the entire tax amount (and the business that hires them does not).”

Analyze the worker relationship. The savings can be significant, but William Levan Byrd, a sole practitioner CPA in Sumter, South Carolina, says entrepreneurs who are considering this option need to respect the service provider’s boundaries.  That’s because the IRS pays special attention to the amount of “independent” a worker has in their “independent contractor” role.

“If a worker completes tasks in their own hours, uses their own equipment, and completes the work in their own way, they may be considered an independent contractor,” says Byrd.  This is often the case with insurance agents, marketing consultants and independent sales representatives.

Alternatively, if a company controls when and where a worker shows up for the job, and pays for all their equipment, the IRS may decide that worker is really an employee and should be taxed accordingly, says Byrd.

As a business owner, if you’re unsure about a worker’s status, Byrd suggests filing out Form SS-8, a checklist that allows the IRS to make that determination.  For more information, visit IRS.gov.

Decide status based on worker role. Even though hiring an independent worker can reduce costs, business owners shouldn’t consider the option solely because of money concerns, Byrd says.

“The biggest mistake I see companies make about independent contractors is to hire them based on cash flow issues,” he says.  “It’s not a decision to be made based on available cash.   It’s a decision to be made based on the appropriate facts of the business situation.  The law is very clear about who can and can not be an independent contractor.”

If a company improperly classifies an employee, the IRS can audit them, require them to pay back employment taxes and would likely assess penalties, says Toni Levy, CPA and owner of Toni Levy and Associates in Louisville, Kentucky.  “Some small businesses owners who get caught find that their penalty fees are higher than the amounts they paid their (misclassified) workers in the first place,” she says.  “It’s the price to pay for disobeying the law.”

Keep paperwork current. Businesses that hire legitimate contractors need to file certain documents at tax time, says Johnson , president of Financial Business Solutions.

“Make sure contractors fill out a Form W-9 before any work begins,” says Johnson.  This is the IRS form used to request the contractor’s correct name, mailing address, taxpayer identification number (TIN) and business information. Blank forms are available from IRS.gov.

Companies should also be prepared to send their workers tax documents after the end of the year.  If a sole proprietor or small company (not a corporation) performs services that total more than $600, companies should annually send them a Form 1099 for tax reporting, says Johnson.

For companies that are growing in need, but don’t have a requirement to bring on an employee, hiring a self-employed contractor can be a cost-effective way to add talent to the team.