Overcoming the Project Diversity Dilemma: AI-Powered Solutions for Optimizing Diverse Subcontractor Sourcing

WISSAM AKRA: Hello, everyone. Thanks for joining. My name is Wissam Akra. I'm the CEO and founder of Tough Leaf. And today, we're going to talk about supplier diversity in the construction industry.

So first, we're going to start with the safe harbor statement from Autodesk. You can read that at your own time. And we're going to talk about the outline of the presentation.

So we're going to start with the introduction, introducing why this is important and who it is important to. We're going to start by explaining supplier diversity and the impact of supplier diversity. Then we're going to spend some time and talk about strategies for implementation. Then we're going to discuss technology solutions that will make this easier for construction engineering companies.

We're going to then spend some time talking about how we help building capacity for the supplier diversity or for diverse suppliers. And then we're going to go through, talk some real world insights. We're going to share some case studies, and that will be the end of our presentation. So let's dive into it.

First, who is this targeted to? Who's the right target audience? This is for decision makers at companies in the construction space. So whether you are a decision maker, a general contractor, a subcontractor, engineering firm, professional services companies, then this is relevant to you.

We're specifically looking at companies that have mandates to meet compliance requirements when it comes to diverse suppliers, whether these requirements are set by public authorities, government agencies, corporate policy or the several tax abatement programs. And this is for companies that are either looking to implement a supplier diversity program or they have one in place. They just want to improve on it and follow best practices in the industry.

So why is it important for you as a decision maker in your company? Because it affects major aspects, one, your top line revenue. And what we mean by that is by your ability to basically win more projects from the projects that you're bidding on. It's going to also affect your business development because it will impact how you can grow into new geographies, how you can grow your client list, and how you can work with more companies. It's also going to affect your bottom line or your profitability, and it's definitely having an impact on how you're perceived in terms of social responsibility by the communities that you are serving.

So let's jump into it and talk about supplier diversity and how we can understand better what that term means and what we mean by when we say supplier diversity. So you've definitely heard about some of these certifications. These are what certifies a diverse supplier, meaning what makes them have the ability to say, hey, I am a certified diverse company. And when we say diverse company, we mean minority-owned, women-owned, small business, local business. We're kind of lumping all of these into diverse supplier.

So here you can see all of the different certifications. This is not an exhaustive list. This is just a list of the most commonly used certifications, whether it's minority-owned, women-owned, disadvantaged, veteran-owned, service-disabled, local business, small business, women-owned small business, small disadvantaged business, HUBZone, LGBTQ-owned business, and there are many more. So these are some of the certifications that you might have already seen in the course of doing your business or you will see in the future, depending on where you are located in the country, because different jurisdictions have different ways that they name the companies.

And because there's different jurisdictions, there's different certifying agencies. So the way it works is if you're a minority-owned business, that means you need to be 51% owned and operated by a minority group. So that doesn't mean that just by getting one certification, let's say to work with New York City, that automatically you are certified to work with other certifying agencies.

If you are certified to work with New York City, that means that your participation in the project will count for New York City projects or projects that accept that certifying agency, whereas if you're working on a state New York state job, that doesn't necessarily mean that you are also counting towards those requirements. So from your standpoint as a decision maker in your company, you need to really understand what certification is required on the project. Is it minority-owned business? Is it small business? Is it disadvantaged business?

And you also you need to know what certifying agencies certifications are accepted. So as an example, if you're working, let's say, again, to use the same example, if you're working on a New York City-funded project, then in that case, you need companies that are certified by the certifying agency in New York City. Or for New York state, it's Empire State Development, for example.

And then on the federal level, you have the SBA that certifies companies, which are small business enterprises, women-owned small businesses, and others. You have the Department of Veteran Affairs, and those work for federal certifications. Then you have state agencies, for example, the Departments of Transportation. And here, you're going to see multiple certifying agencies on the state level, which is either going to be the state government or a public authority, for example, like Port Authority, or small business departments within these state agencies.

And then on the local level, you also have city agencies. One thing that is also common is counties. So for example, in Florida, the certification comes from the counties. Whether you're certified by a Palm Beach County or Broward County will make a difference depending on where the project is located and which certifications are accepted.

In addition to that, there is private certifying agencies, like NMSTC, National Minority Supplier Diversity Council. They certify companies as well, and there are certain entities that accept that certification, that accept the NMSTC certification, but obviously not all of them. Government agencies only accept their specific certification.

So we mentioned that to try to explain that the certifying agencies are complicated. There's a lot of them. There's hundreds of certifying agencies in the United States. Some of them are private, some of them are public. But these are all things that you need to be cognizant about while going after a project and/or completing work on a project.

Some other points of understanding in terms of supplier diversity are the two stated here. One is commercially usable function. So if you're looking for a certified diverse business, for them to count as participation, they need to provide a commercially usable function.

To explain what that means, I'll explain what the opposite of that means. If you're not providing a commercial function means that you're just a pass-through contract. In other words, contractor ABC contracts with minority business XYZ, and then minority business then takes that entire contract and subcontracts it to another company that actually does the work.

So that's a pass-through contract. That is not accepted and obviously will put you in a lot of compliance and legal issues. For the participation to count, that business needs to be able to prove that they are providing a commercially usable function, that they are actually the ones doing the work that have been they've been contracted to do.

One other type of certification is self certification, and that is just the subcontractor or the diverse business saying, I self certify that I'm a minority. They can do that with just by signing a couple of pages or a couple of documents, and they don't need to go through the certification process with government agencies. Now, that is accepted with certain programs, with certain agencies in lieu of certification, but only in very limited jurisdictions. But does exist, so we thought it'd be a good idea to mention it here.

All right. So now that we understand what certifications are, what the different certifications are, we need to understand what the impact of supplier diversity is on your business and what it means beyond requirements. So first, what happens if you don't meet your goals? Let's talk about goals.

So on different projects all across the country, there is a participation goal that you need to hit in order to meet your contractual obligations. I'll give you some example of these goals. In New York state, 36% of any New York state funded project needs to go to diverse suppliers. It's split 15% for minority-owned businesses, 15% for women-owned businesses, and 6% for SDVOBs, or Service-Disabled Veteran-Owned Businesses. And that is a goal that is required on New York state projects.

On the federal level, the requirement is around 23%, which is split between different types of small businesses, small business enterprise, women-owned small business, veteran-owned small business, or disadvantaged small business as well. So these are the different goals that exist. Every jurisdiction has its own goal. In certain cases, every project has its own goal. And then it also could get complicated where there's multiple funding agencies and you need to hit combination of goals.

But if you're going after projects or government projects or private, you've seen those goals, and you've probably wondered, what happens if I don't meet these goals of participation? And we've seen, depending on where you are in the country, the jurisdiction you're working under, we've seen multiple results, ranging from financial penalties that could be, hundreds of thousands to millions of dollars if you don't meet your goal or in certain jurisdictions that require requirements, not just goals. There, you could be disqualified from a project.

So you could be bidding on a job. And you might have the lowest and best number, but because you're not meeting your goals on this particular project or on previous project, the agencies might decide to disqualify you, and we've seen that happen multiple times in the past. They get to-- if you're on the project and you're not meeting your goals, we've seen also agencies withholding payments until you can prove that you are hitting your goals or have an answer of why you're not hitting your goals.

Other less immediate penalties are missing internal goals that you've set for yourself. It has impact on the stakeholders or the ability of your agencies or owners to receive certain easements. Like, if you're working on an affordable housing project and you don't meet your goal, the developer of that project might miss out on significant tax benefits, which might then circle back to you. And if you don't meet your goals, sometimes you need to prove certain compliance aspects, which have a huge administrative burden on the project team and on the company in general, because you need to prove why were you not able to meet that goal and show all of the documentation of how that happened. So those are the negatives of not meeting your goal that you can see right away.

On the other hand, there are positive impacts of having diverse suppliers on your project. One is innovation and creativity. There's been a lot of articles and documents published on how having diverse suppliers improves that.

Same with efficiency. You can read a lot of McKinsey articles that I will share after the presentation is done on how that helps. It will help you garner local support. And to give you an example of that, Columbia University and Northern Manhattan were working on expanding their campus. At the beginning, there was huge backlash from the community. And then because they were using minority women local businesses that are from that market, the local component started to change their processes because they're like, this is going to help in local businesses grow and hire local people, and that helps garner local support for your project.

Also, positive impact is market access and expansion. If you're looking to expand your company, you want to go into new jurisdictions, you want to meet these goals in your jurisdiction. So if you have the right supplier diversity program, that is going to set up a competitive advantage for you. And obviously you'll be developing the communities that you're working with by giving back through using diverse suppliers that are local or small and things of that nature.

So now that we've spoken about the impacts and what this can do for your business and for other businesses around you and for the local community and for the success of this project, let's talk about different strategies of implementing supplier diversity program. Or how do we go about finding these suppliers and getting them onto the project? We'll go through that now.

So first, in order to track what you're doing, you need to set your goal. How much of this job needs to be subcontracted or awarded to diverse suppliers, vendors, subcontractors? In order to set the right goal, you need to think about three major things.

One, is my goal to meet the requirement from my client or to exceed it? Certain things that you might think about is, as we're moving to more of a best value approach in bidding versus a lowest responsive bidder, a lot of clients are now putting significant weight on supplier diversity and the percentage you're giving out, so exceeding their requirements can help you beat the competition. Sometimes you have internal goals, and we've worked with a lot of clients that whether there is a requirement or a goal by their client, by their owner, as a general contractor, they have internal goals on every project that they work on to meet percentage of participation from diverse suppliers.

And you also need to think about what certifications you accept. We spoke about this. Do you accept small businesses, minority-owned businesses? What certifying agency specifically is accepted for your project? So those are the three things that you need to keep in mind. For example, some of our clients track only the certifications that are required for the project. They track all of the certifications so that they can use that in marketing efforts.

After you've set your goal now, you can start by identifying your base. So you need to find the universe of diverse suppliers that make sense for you. Let's say you work in Chicago. You need to figure out what-- or you're working on a project in Chicago-- what diverse suppliers exist in Chicago that you can work with. And that's just trying to figure out the entire pool of diverse suppliers that exists in that market.

If you're a national contractor, you work everywhere, you need to look at the pool on the entire United States. So where do you find these? Where do you find that universe? Where do you understand where that pool lives?

It lives in certifying directories that you can get from hundreds of different certifying agencies around the country. So federal government has the SBA. You can find all their certified diverse suppliers there. Different Departments of Transportation, they show you or they have on their website Excel files that you can download, and you can find all of that pool of different suppliers. So you might end up having to download tens if not hundreds of Excel sheets to find that pool.

Once you find the entire pool, you need to start making it smaller to really understand which are the diverse suppliers that you can work with. And that could be based on their experience, their insurance, their past performance, their financials, how long they've been in business, legal aspects. And more importantly, what do they do? Are they an electrical subcontractor? If you're a GC, that might be something you're interested in.

Are they an electrical designer? If you're a designer of record, that is something that you might be looking for. So you need to understand how do you go from this huge pool to a smaller pool of these are the diverse suppliers that can work with on my project.

Then you need to identify the diverse suppliers that fit your business goals. So now, we got the large pool. We made it smaller by only looking at the diverse suppliers that meet my requirements.

Then you need to outreach to them and say, hey, ABC Construction, again, I'm looking for diverse suppliers to work with me on a certain project. Are you interested in working with me. And I need x, y, and z information on you. I need to know what your insurance limit is, what your workers' comp is.

I need to find what past projects have you done. I need to know what's the biggest job you've done. I need to understand what your capacity is to do work. So there's a lot of information that you need to collect on these diverse suppliers after you collect, before you can qualify which ones you can work with.

So again, to recap, you start with a large pool of diverse suppliers that you can get from all of these Excel sheets or PDFs or websites, and then you set your goals to say, OK, I'm looking for diverse suppliers that meet A, B, C, D, E, F requirement. Then you start reaching out to this large pool of diverse suppliers and figuring out who fits these requirements. And then you need to qualify which ones you want to work with. So that's how you take the pool and you make it smaller.

And then you need to build a relationship with these diverse suppliers. You need to reach out to them, ask them if they want to bid on projects, understand their availability, because they might be the exact right supplier or subcontractor that you want to work with today, but today they don't have the capacity to do any work. They might be working with your competitor or they might be working on other projects. They might not be bidding on projects.

So you need to find the ones that are bidding on projects right now, and then you need to send them the drawings, collect their proposals, and you need to select the right company for your project so you can meet your compliance requirements or goals. And we suggest that you do that basically by looking at their qualifications and their experience and the price. We don't recommend looking at the price alone because then you can end up with the wrong decision.

After you bring them on board, hopefully you're meeting your percentage requirements. Then you need to monitor your diverse percent spend, and that happens, depending on which jurisdiction you're working with, it can be quarterly or yearly, some cases monthly, a few reporting how much money has been paid to these diverse suppliers. Compare that to your goal, and then report that to the stakeholders, whether they're your private clients or public clients.

So obviously, everything we spoke about is doable, but it takes a lot of time, takes a lot of effort. It's very highly manual approach. It stands in the way of doing other things.

So you can either build the department internally that is doing all of these things, and then that has its own challenges of continuously changing certifying data. So it's not enough for you to download those documents once. You kind of need to go back to these documents, continuously update them, stay in touch with the diverse suppliers, catch them at the right time. So there's a lot of the reasons why the manual approach does not work, especially if you are working in multiple jurisdictions, multiple states, and trying to grow.

But I'm not here just to give you problems. I'm here to suggest solutions. So we're going to take a look at a technology solution that will solve this large problem for you, save you time, ensure that you get more bids from diverse suppliers, and that you have more competitiveness between your subcontractors, your suppliers, your vendors that are bidding on your project so that you have a competitive advantage and you can win more jobs. So let's talk about how we can get that.

So on the left, you'll see the strategies for implementation that we just spoke about. Setting your goals, that's always going to be on you. You're the one who's going to decide if you want to meet your requirements, exceed your requirements. If you're going to have internal requirements on projects that don't have client requirements, that's always going to be on you.

But then we've created different aspects that will help you in the rest of the process. Identifying your base, you can do that through the Tough Leaf profile. We'll talk about that. Identifying the diverse suppliers that fit your business goals, that's Tough Leaf Matching. We'll talk about that.

Building a relationship with them happens through Tough Leaf Outreach. Tracking and monitoring happens through Tough Leaf ClearSpend. Capacity building, which is something we didn't touch on yet, but we'll get to that at the end of the presentation, we could do through Tough Leaf Partners.

So first of all, let's talk about identifying your base. So you have two options. As I mentioned, you can go and download a lot of Excel sheets, or you can use a Tough Leaf profile. So what we've done is we've collected the data from every certifying agency in the entire country, all the ones that we've discussed, from the federal to the local to the state to the Departments of Transportation. We've got all that certifying data. We're KPI integrated into all of them, and we get data continuously so that we can build this profile that you can see here on the right.

The profile that you can see on the right includes every certifying agency certification. So you can see that on the top. It includes the company details, so whether this is a consultant, a subcontractor. It includes their contact information, so that goes from email to phone number, website, address, mailing address, ethnicity, which is a requirement in certain jurisdiction, primary contact, multiple contacts as well, whether it's the owner of the business or that you might just need to talk to the estimator to ask them for the bid or to understand any information from them.

We've also collected their NAICS codes about the company, projects that they've done in the past or referenced project. That includes the name of the project, the client that they've worked with, when it was completed, what scopes did they work on, who are their references, how big was that scope. So we also talk about the company highlights, and we show them here. So that includes the workforce, how many projects they've completed, how long they've been in business, their revenue, their capabilities, which are basically just an easier to understand version of NAICS codes, because NAICS codes tend to be complicated. The capabilities are system generated through AI on Tough Leaf, and that gives you an understanding of what this company does.

You'll also be able to see their labor type, so if they're in the union, not in the union, open shop. Do they pay prevailing wage? Do they have the ability to pay Davis-Bacon wage? You'll also see their EMR rating, on a safety side, you will see their bonding capacity.

So we've collected this information on every certified, small, diverse business in the entire United States. And if you're curious how we do it, we tap into, again, every certifying agency. We tap into Department of Labor, Department of Finance, other private and public sources to build this profile on the businesses. And then we ask them to claim their profile. In case you're wondering, it's all for free for small, diverse businesses to use Tough Leaf.

But that's our method of how we were able to collect the data on these businesses because, as I mentioned, everything starts with the data. If you know what the universe is, then you can't reach out to everyone that can do the work. So that's step one that we can help you with, is we've already collected the data. And it's always kept up to date. We update our system on a monthly basis, so if someone loses the certification, it goes away from their profile, someone gets a new certification and a new profile gets set up, and so on.

So this is good, right? But it doesn't really help you, if you just have the data, then it doesn't really solve your problem. It makes it easier, but the solution is still forthcoming.

So first step is Tough Leaf Matching, and that's how Tough Leaf can help you find the right match for your project. Process is pretty simple. You will share your project details on our platform.

You'll say, hey, I'm looking for an electrical subcontractor. They need to be based in Miami. They need to be a small business identified by-- sorry, certified by Miami-Dade County.

You can then put your qualifications. So you'll say, I'm looking for someone that has done $1 million electric subcontract before working on commercial projects. We need them to be able to pay Davis-Bacon wage because this is a federally funded project. We need them to be within 50 miles of the job and other requirements that you can think of.

Once you share that with us and you share the RFP, then that is all that you need to do on your end. Then our system will automatically find, through our database, the subs that meet your qualification, everything that you've mentioned in the first step. They have the required capacity and they intend to provide a deadline to you.

So those are the things that Tough Leaf Matching does. It basically uses that information and looks at your requirements. It looks at the capabilities of the subcontractor, marries them together, and say, hey, here from the 100-- sorry, 200,000 diverse businesses in the Tough Leaf system right now, here are the seven that can actually meet your requirements. So it does that job of going from that large pool to that specific subset that can work with you.

From there, the problem is not done. You still need to figure out, how can I tell these suppliers about my job? How do I outreach to them? So the next step in the process with Tough Leaf is that we will do your outreach.

So our team internally will contact all of the qualified subs through call, text, and email, and let them know about your project, explain to them what the project requirements are and why they have been selected. And then we integrate with BuildingConnected in order for you to basically get the bids through BuildingConnected. So that's where they can download the drawings and that's where they will submit the bids.

And we do it that way because you're already using BuildingConnected, assumably, or any other procurement platform. And we want to keep your process the same way as it is today. We don't want you to go out of your way and do procurement for diverse subs in one platform and procurement for non-diverse subs on other platforms.

So just to recap, all you need to do is give us your requirements, and then we will match the right businesses with the requirements. We will outreach to them. We will see if they're interested in submitting their bids, and we'll continuously follow up with them until a bid is submitted on BuildingConnected or other procurement platforms.

Doing so, we've been able to average three bids per trade with our clients. That doesn't mean that we get three bids per trade on every scope. That means that some of them are two, some of them are five. In some cases, we can't find anyone, if it's a very specialized scope that there are no small, diverse businesses willing to do.

So you'll get that. You'll also get a comprehensive outreach log that shows everything that happened during this process. And that's what you're seeing here on the right, which helps you meet your compliance requirement because it shows when the phone calls were made, when the emails happened, how many times have we called them, how many times have we emailed them, and what the response was, whether they submitted a project, whether they are not interested in bidding on the job. It'll tell you why they are not interested. And in some cases, they just don't answer.

So by doing so, again, we were able to get three bids per trade. We've collected over $2 billion of bids that were submitted through this process, and over $600 million of these have been awarded so far. And that's also only in the past 12 months.

So to recap, what are the benefits of doing this existing process, which we've outlined at the beginning, versus the Tough Leaf process? If you're working with a Tough Leaf process, the contract is developers that work with us. They are able to find the right diverse businesses, so they don't have to go through the public websites.

They meet their goals. So one, you're getting the bids, two, you're getting this comprehensive outreach log, which is the platinum status of outreach logs. No more Excel sheets that say, hey, I promise, I called this. Everything that we have in our system is electronically logged so it can't be manipulated.

You will mitigate the risk of working with unqualified subcontractors, vendors, or suppliers because you have access to all of their data. And more importantly, or maybe one of the most important things, that you're going to ensure competitive bidding. You're going to be getting three bids per trade on the scopes that you use with us. Again, that's on average. So we guarantee you that you're going to get three bids per trade on average because we know that that's been the case in the past.

And if there are any scopes that we think that it's not going to work, we're going to let from the beginning. Again, if you match zero subcontractors with the capabilities, then we go from the big pool to zero, you're going to know. So that won't go through the entire process, so you don't waste time.

So what does that do for you? If you're only getting one bid from a subcontractor and you need to meet your goal, then you're going to have to use them, whereas if you're getting multiple bids, you have optionality. You can choose which scopes do you want to award to diverse suppliers so that you can build the best bid or the best competitive proposal, and use that to win more jobs.

All right. So let's talk about Building Capacity. We all know that there's a lot of barriers to entry in the market for small and diverse businesses. We've heard a lot-- in the work that we do, we've spoken to thousands of diverse suppliers all around the country, and we hear the challenges that they are facing.

One of these challenges is, I need to build more capacity so I can go after more projects, so I can bid on more jobs, so I can perform more jobs. So how does we at Tough Leaf help the general market is we help them by partnering them with existing programs. There's a lot of programs for diverse suppliers, whether it's on a local level or state level or national level. And it's very difficult to find them for them. They don't have the time to go through these hundreds of programs and figure out which is the right one for them, so we make everything easier on Tough Leaf.

We've brought on capacity building partners that have the tools to enable them to grow their capacity, whether it's payroll, tax credits, staffing, insurance, bonding, grants, accelerated payments, material management, all of these things we've helped our suppliers do. And we've created these tools by partnering with great people in the field. For example, we partner with a company called Constrafor that helps provide diverse suppliers and all of our suppliers with accelerated payments.

We've partnered with several grant companies or nonprofits all across the world that are capable of giving diverse suppliers 500,000, up to $1 million of grant if they secure construction work. So there's a lot of benefits that exist in our capacity building partners, possibly not for you since the contractor, but at least indirectly, it helps you build more of a larger pool of suppliers because there will be a larger pool out there in the world.

All right. So all sounds great. Let's look at specifics, real-world insights, real-world examples of clients that have been happy with the work that's been provided through this technology solution.

First, we'll talk about JRM Construction. So JRM had worked with us, or we worked with them more specifically, on the JPMorgan Chase new headquarters at 270 Park in New York City. These are some of the requirements on the left.

They had a 25% requirement set by JPMorgan Chase. This is not a public project. This is a private project, but JPMorgan wanted to have this 25% participation because they thought that will help them achieve the best goals for their project.

So they needed to get 25%. They had $94 million that they needed to award, and they had 24 bid packages, including the ones that you see here on the screen. So we delivered to them 100% on all 24 trades, three plus-- so a minimum of three vetted diverse suppliers. So that was 80 diverse suppliers in total that met the project requirements, had the certifications, and had the bonding capacity.

And we prepared that comprehensive report, and it was delivered to them 10 days ahead of schedule, which allowed them to meet the requirements of the project from a bidding perspective and also from participation by diverse businesses, in this case minority and women in disadvantaged owned businesses. So that's one example. The testimonial, they told us it would have taken them two people for a month to be able to get through this information and get that data, whereas the Tough Leaf system was able to do that in a week without putting any burden on their resources.

Another example is what we have done with Restani Construction. Now, this is an example where we were brought in after the bid happened. So during the bidding phase, you'll see here, these two columns on the left, the quotes provided before Tough Leaf and the lowest responsive price available there.

You'll see that on these quotes, they had bids on some of them. Others, they didn't have bids. And you'll see the lowest responsive price.

With that, they were shy of their compliance requirement of 20%, so they brought Tough Leaf on because the state Department of Transportation asked them to at least meet the requirement. In this case, it wasn't a goal. It was a requirement for disadvantaged business enterprises.

So they engaged us after the fact so we can rectify the situation. We then got involved. We got them quotes from more suppliers on all the scopes that they were looking for. So before Tough Leaf, they had seven quotes or seven proposals. With Tough Leaf, they had 26.

And then we're able, because we're getting them more bidders, to get them better responsive bids, people that can do the job with the qualifications that are required-- I should say companies, not people-- that could do the job with the qualifications required for a smaller number. Why? Because you're increasing the competition. More competition, lower prices, better results for the project.

In total, they were able to save $1.1 million on the project and meet their requirement. And so all of this happened during the buyout phase of the project, and their results speak for themselves. They were in compliance and they saved money at the same time.

We pride ourselves in the ability to help our customers meet their compliance requirements, but obviously we're all here in order to make money. So that's what we can deliver to our client is both. So thank you for your time. I appreciate it.

If you have any questions, please feel free to reach out to me at Wissam@ToughLeaf.com, and I'm happy to answer. Have a great rest of your day.