Use Leasing to Meet Diversity Goals

Construction business management.

Terri E. McNally

ATTENTION: All contractors doing business with federal, state, county or city government - the following information could be the differentiating factor in winning future contracts. And if you are doing business with the Fortune 1000, the information provided will help you unequivocally with your next RFP.

If you happen to be an equipment dealer wanting to add value to your customers, and you can't drop your price any further, you should also read closely.

Federal, state, county and city government, as well as many corporations, have mandated diversity initiatives on their construction projects. This means they are actively trying to utilize a supplier base that incorporates women business enterprises (WBE) and minority business enterprises (MBE).

Supplier diversity is a corporate or government initiative to include all suppliers - large or small, and owned by women, disabled veterans, minorities and other protected classes. Corporations understand that social responsibility is increasingly important for sustainable business. For example, minority-owned businesses generate $500 million in revenues, and women-owned businesses generate $3.1 trillion in revenues. Supplier diversity programs are an economic necessity.

Government entities actually mandate a "diversity spend" in their contracts, requiring up to 20% of all spending be through M/WBE suppliers.

Meeting objectives
Leasing is an excellent way to meet supplier diversity objectives without cutting into your profit margin. Equipment leasing with an M/WBE (diversity) leasing company is considered a Tier One (or direct diversity) Spend for any contractor, provided the contractor transacts the lease with and makes the payments to the diversity leasing company.

Consider the following example: A contractor wins a job to build a bridge, then leases a $100,000 piece of equipment for the project. Even if the dealer providing the equipment is a non-diverse vendor, the contractor may be able to count the $100,000 toward its diversity Tier One Spend if the actual lease transaction is completed through an M/WBE leasing company.

The specific requirements to count these dollars dictate the use of a Master Lease Agreement with the diversity leasing company, with all payments being made directly to the diversity leasing company. This qualifies as a Tier One Spend for the contractor and a Tier Two Spend for the government or corporation for whom the contractor is performing the work.

In addition, all goods and services purchased from an M/WBE can be counted toward your diversity goal.

A point of discussion
A dealership that offers its leasing program through a diversity leasing company can deliver added value to its customers without decreasing its own margin. Such a program can enable contractors to meet diversity objectives - which may be a requirement from the prime or government entity - without the need to sub out work to an M/WBE subcontractor.

However, because the dealership itself may not actually qualify as "diverse", dealer salespeople may not think to bring up diversity leasing as a topic. As such, it's important to bring it up to your dealer sales rep to determine whether such a program is available.

It's also important to discuss the topic of diversity with your own customers. They may not realize you are making a diversity spend, which they can in turn count toward their own Tier Two Spend.

The business case has been made. There is an actual dollar savings in using diverse suppliers.

Guest columnist Terri E. McNally is CEO of Global Capital, a 100% woman-owned leasing company that qualifies as a diversity leasing partner. In addition to working at an equipment rental yard in high school and college, Terri has been in the equipment leasing industry for over 20 years, 10 of which were spent at GE Capital. She can be reached at (847) 223-7820 or [email protected].

Garry Bartecki is director of dealer/distributor services at BDO Seidman, LLP of Chicago, as well as a consultant to the AED. He has also worked as an independent CPA and consultant to equipment dealers. He can be reached at (312) 616-4677 or [email protected].