that the cries from the ghetto were not being properly interpreted. Only those sensitive enough to the language of the ghetto were getting the message that Black people wanted to be partners rather than panhandlers, wage earners rather than welfare recipients and builders rather than torch bearers. They were asking for an opportunity to demonstrate their pride and their ability to contribute to better conditions in their community.

There were fears that the response to their cries would be in the mode typically used to meet natural disasters rather than the human disaster that had occurred. It was apparent that any successful strategy to rebuild the community had to place primary emphasis on human renewal. That premise was translated into an operating strategy by CEDC when we began organize the West Side Builders Association, the predecessor to the present United Builders Association of Chicago. During its first year, the West Side Builders Association helped its members secure nearly $750,000 in construction contracts. Later, with CEDC's assistance, the Association was able to obtain a techical assistance grant from the Economic Development Administration of the Department of Commerce, enabling it to provide a wide range of services to its members. CEDC's involvement with the United Builders Association has provided some valuable insight into the problems facing small minority contractors. The remaining portion of this statement will explore these problems in greater depth.

Any discussion of the minority contractors must embrace many divergent topics germane to the plight of minority businessmen, in general.

First, let us define our interpretation of the word "contractor." He is one who assembles labor, material, equipment, insurance, financing, administrative services and legal counsel to perform construction. He anticipates that income will exceed expenses on a given job and that a profit will be derived from his efforts. There are few non-white contractors who operate under this description. Recent surveys indicate that only 2,000 to 6,000 black general and subcontractors exist in the nation out of a total industry figure which exceeds 800,000. The lower figure appears to be more realistic since many of those counted in the upper limit are "negotiating tradesmen" similar to the handyman of old, rather than a contractor as defined above. The vast majority of these are specialty or subcontractors. The largest Black contractor in the country, Winston Burnett of New York, ranks in the second hundred of major contractors in the country. The overwhelming number of specialty contractors are confined to what we call the trowel trades, wet trades and carpentry, i.e., painting, plastering, concrete, masonry, resilient tile, roofing, drywall and carpentry. Throughout the length and breadth of the country, the highly technical crafts show a dearth of Black representation (elevator construction, heating, ventilation, plumbing, electrical, sprinkler systems, etc.). This disparity in subcontractor involvement is a direct result of trade union discrimination.

Since precious few Blacks were trained in the highly skilled areas, few. if any, emerged as businessmen with this expertise. The Chicago situation is clearly indicative of the national trend. In Chicago, there are between 100 and 200 Black contractors depending on the flexibility of the definition. Their problems can be delineated and classified by component areas to develop a classic model for closer scrutiny:

LABOR

Because they are faced with a morass of problems, the minority contractors' operations maintain a visibly unstable posture, which is not conducive to retaining trained help seeking security and capable of finding it in larger, nonminority owned ships, i.e., limited opportunity may cause his business to be dormant for extended periods of time. Union discrimination has prevented the development of a trained Black labor pool from which the minority contractor could draw his workers.

MATERIAL

Because of the small volume of purchases and limited financial resources, he is unable to gain benefits from volume deals, receive cash discounts, etc.

EQUIPMENT

His lack of resources hinders innovative use of new production techniques in his craft which might allow him to perform at a higher level of efficiency and profit.

FINANCING

The need to make payroll, and pay for external services requires the contractor to have financial resources on an initial and interim job basis. The absence of these funds creates a morass of problems affecting all areas of his operation.

ADMINISTRATIVE SERVICES AND LEGAL COUNSEL

Most Black contractors bring to their enterprises an excellent knowledge of the trade itself, but they are woefully inadequate in the management and organization skills required to handle more complex endeavors.

INSURANCE

In the area of workman's compensation insurance, few, if any, acceptable companies are writing policies for payroll of $25,000 or less. This means a small contractor with two regular employees is in trouble.

BONDING

Because there are few Black general contractors in Chicago, the problem of bonding does not surface as often as do the others. However, because there is a surety bond problem, only an infinitesimal number of Blacks have been able to operate at the general contractor level. Thus; the surety industry with its present posture looms as a dangerously damaging obstacle.

The requirements governing surety bonds create almost insurmountable obstacles to the growth of contractors reaching the bondable stage. But, more significantly, it prevents growth, dampers enthusiasm and serves as a deterrent to Black contractors who would like to venture out into the expanded construction arena.

In construction, there are three principal bonds: bid, performance and payment. When a bid bond is required, you must submit with your estimate a check covering a percentage of your projected price (usually 10%); hence, a $250,000 job usually requires that a $25,000 cashiers check or letter of credit accompany the proposal. Small wonder so few Black contractors follow up on projects of this size which, to a non-minority general contractor, is a relatively small job in today's market. The performance, as stated in the American Insurance Association's position paper accomplishes the following objectives:

1. Qualify the proposed contractor as to his ability to perform the contract for the price within the established completion time.

2. The surety will indemnify the owner for any reasonable costs in competing the project which are in excess of the agreed price.

3. That all labor and material and subcontractors are promptly paid. Minority contractors recognize the need for the protection outlined above and as a result there has been no attempt on the part of local or national minority contractors to reduce the level of protection in these areas. The question becomes one of how can these safeguards be continued without penalizing the Black contractor.

Quoting again from the American Insurance Association Paper:

The surety industry defers to no one. person or group, in decrying the difficulties which beset minority contractors in their efforts to participate more freely in competition for the construction dollar. But it must not be forgotten that the surety industry is not the cause of such difficulties. They are deeply rooted in the mores of our society which for so long have deprived most of our minority groups of meaningful access to good educational and training opportunities, intellectual and vocational. This unfortunate history has disabled most of the minority group, contractors and others, from amassing sufficient capital, management skills and know-how to compete successfully with the majority of our population.

Absolute candor compels us to point out that the chief and recurring difficulty which most minority group contractors encounter in applying for surety bonds arises from their marked deficiencies in experience, management and other skills in running construction jobs of more than limited scope.

It is a familiar cyclic process that plagues the minority contractor in this respect. The surety company requires experience in the particular kind of job under consideration before issuing a bond. The Black contractor needs a contract to do that kind of job to get the experience. He cannot acquire the contract without a

bond. And so it goes much like the bad housing, poor education and lack of employment cycle confronting Blacks in our present environment. In many instances, a minority contractor will execute the necessary forms in applying for a bond and upon presentation finds that the interpretation has apparently been altered and he is unable to obtain the bond, thereby adding to his frustration. In this connection, let me cite an example: A competent, Black general contractor, a member of the United Builders Association of Chicago, bid on a $500.000 project consisting of 22 row houses. This contractor, in the past, had successfully built family dwellings of the same unit-size as called for on the bid. He was confident, as were we. that he could complete the contract. The contract was a separate parcel of a 15 million dollar job let to a minority general contractor. This contractor requested a bond from the Black contractor. He estimated the job himself, then had it evaluated and approved by the head estimator of a major firm. He then applied for a bond. In order to help him with the bond, United Builders Association of Chicago, granted a loan from their fund in an effort to improve his "net quick".

The United Builders Association of Chicago also identified and secured technical resource people to assist him. The bond was refused: (1) He had never done a job of this kind before; (2) he did not have a sufficient amount of money available (in the sureties" opinion) to comfortably perform. The contractor got the job because the prime contractor waived the requirements. However, the point is clear that there could hardly have been less favorable circumstances for an innovative approach to securing the bond for the Black contractor.

In conclusion, the problems we have attempted to outline play an important role in determining the ability of minority contractors to function in the construction industry. Often, they are excluded from participating in projects being constructed within or adjacent to their own communities. In many instances, the work is being done by contractors who offer resistance to the Chicago Plan for the training and employment of Blacks and by unions who are not sensitive to the needs of the communities.

Small wonder we have such confusion in the social order of our city when these economic insults are manifest in this way. There have been attempts on the part of Government and local organizations to alleviate these difficulties. The most striking contributions from Government have been the forceful action by John Wilks and Arthur Fletcher in the Labor Department. The willingness of this Department to invoke Federal sanction where minority representation was lacking has done two principal things:

1. It has supported and given encouragement to local organizations in their struggle for entry into the union.

2. It has created a climate of concern wherein the Black subcontractor is being sought out and awarded jobs because, at this point, he is the chief source of Black bodies required for contract compliance.

The Small Business Administration's Sa Program, combined with pending Congressional legislation to assist minority contractors, will provide some relief in the area of financing and bonding. The work of the Economic Development Administration in the Department of Commerce in funding construction organizations has been of great help. The Model Cities program also offers promise. However, we look forward to the day when minority contractors will participate fully in the construction industry.

Mr. KLUCZYNSKI. I want to thank you for the splendid statement of yours.

And would you, for the record, introduce your associates, please? Mr. GUICE. On my extreme left is Mr. Paul King, who is project director of the Chicago Economic Development Corp., and Jesse Madison, associate director for the Chicago Economic Development Corp.

Mr. KLUCZYNSKI. I think your organization is an excellent example of assistance to small business. You are to be commended for your fine efforts.

We are here to listen to your problems and we want to help you. We just don't want to get your testimony and go back to Washington and forget about it. I have been in business for 50 some years. I am

interested in your problems, that is why I am sitting here. And I enjoy listening to the witnesses.

Now, you were here when the Director of Insurance, Mr. Baylor, testified and I asked him, on page 3 of his testimony, at the bottom two lines, "The minority contractor generally does not have adequate working capital or previous experience to qualify for a bond on a large project."

Well, we know that. How are we going to get you to be able to be a big contractor, to help you bid on something?

I think you mentioned something about a $750,000 contract: didn't you? What would be the performance bond for a contract of $750,000? You would need a performance bond or a surety bond of how much?

Mr. GUICE. Usually it is 10 percent to secure the bond.
Mr. KLUCZYNSKI. How much?

Mr. GUICE. For the bid bond it is usually 10 percent.

Mr. KLUCZYNSKI. More than 10 percent, isn't it?

Mr. GUICE. Performance is usually 100 percent.

Mr. KLUCZYNSKI. And how much would that bond cost you, approximately?

Mr. GUICE. Mr. King is handling our project; he might like to help me answer some of these questions

Mr. KLUCZYNSKI. An approximate figure, it doesn't have to be right on the dot.

Mr. KING. As it relates to the minority contractor, the cost of a bond for $75,000, we don't even know yet because we have been unsuccessful in achieving one, so I don't know what the answer to that is.

Mr. KLUCZYNSKI. How much?

Mr. KING. Probably in the area of 3, 212 percent.

Mr. KLUCZYNSKI. Two and a half percent?

Mr. KING. Correct.

Mr. KLUCZYNSKI. Would that be for the white contractor or for the black contractors?

Mr. KING. Our figures are drawn from the white contractors, because we haven't had too much reference to black contractors at all relative to bonds, so we have no information really to draw on in that respect.

Mr. ROE. Two percent would be about $15,000.

Mr. GUICE. Mr. Chairman, when we get into the problem where a performance bond is necessary, usually the only way we can work it out is to get a waiver by the general contractor, which means we are not normally general contractors, we are usually subcontracting and have to get in by the back-door method of the waiver of the bond.

Mr. KLUCZYNSKI. Well, we will take the general contractors. Say a contract of $750,000, you are a sub, how much would that-well, that would all depend on whether it is plumbing or electrical work or something, but I am trying to find out-you said the small minority contractor is generally not equipped, he is not financially resonspible. What can we do to help to finance that fellow so he can become a big businessman? I have been in the political business and holding legislative office for 50 years. I have seen things grow and seen things go down. That is why I am interested in the small people.

Mr. GUICE. Usually the average minority contractor cannot take on a large job per se because his financial base isn't adequate and because of the problems of getting the performance bond.

What we would like to see is that in those areas where he has shown competence that he would be able then to secure performance bonds at the level that he is capable of attaining at this point. And if this performance bond requires that he has a financing capability, for instance, we would like to see a line of credit extended to him by the Bank and maybe guaranteed by the SBA, and may be assured that he has a financing capacity so he could get the bond.

It may be necessary, in addition to that, to have some guarantees by the Federal Government to the insurance companies.

Mr. ROE. Mr. Guice, the loan, though, you are talking about is not really giving him the type of assistance that is going to help him.

There will be high interest to be paid on it, and it is not going to put his equity situation in any better position. This is what the bonding companies are looking for. They are looking at the assets that are available in case of failure.

By obtaining a loan, aren't you creating more difficulties?

Mr. GUICE. No; my reference to the loan is having him have the financial capability to do the job. You have two problems here. One is, of course, the performance bond and the other is having the money to do it.

My point is that the performance bond may require a Government guarantee in order to let him get a performance bond from the insurance company.

Mr. ROE. Aren't you weakening the whole process if the Government requires a bond for the purpose of knowing whether or not a contractor can perform the work, and then turns around and subsidizes a surety company to provide a surety bond? Aren't you just getting in a circle there?

Would it not be better just to drop the bond requirement completely?

Mr. GUICE. Are we talking now about Federal work?

Mr. ROE. Yes.

Mr. GUICE. Where it relates to the Federal Government, I would say yes.

I wasn't speaking in terms of the Federal Government reinsuring themselves, I was talking more in the general construction area, private construction, which requries a bond.

I would like to see the Federal Government waiver bond requirements up to a certain amount. And I think there has been some legislation toward that end.

Mr. KLUCZYNSKI. You heard the testimony of Frank Annunzio. He says that the Federal Government is in the insurance business now. The Social Security program is an example.

I sincerely hope that insurance companies will get together and do something for the small businessman. If not, then of course the Federal Government will have to act, and whether it is subsidy or whether it is direct insurance, something must be done.

Mr. KING. I think it is important that the question of the minority contractor-I think there are several different areas, you know, as to his being a small businessman, that this committee should hear.

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