Fighting 'pass through' perceptions
By Staff -- Industrial Distribution, 5/1/1998
Neither Jim, Jeff nor Eric Moreland thought starting out in the electrical equipment industry would be easy. But the one hurdle they didn't anticipate was fighting perceptions that most minority distributors are illegitimate.In January the family -- Jim Moreland and his two sons -- opened a business called Jaymore Electrical Products and Systems in Pittsburgh. In many instances in that city, the Morelands and others say minority-owned firms that purport to sell industrial, construction and electrical supplies exist mainly on paper. Dubbed "pass-through'' companies, those firms operate as a front for non-minority companies bidding on government contracts where set asides for minority or women-owned firms may reach 20 percent. Although the paper flow suggests otherwise, products usually go straight from manufacturers or white-owned suppliers to contractors. The pass-through firm receives a cut along the way.
Jaymore, which delivers engineering services as well as electrical supplies, has already turned down requests to operate as a pass through. Company president Jim Moreland finds those offers offensive.
One of his sons, Eric Moreland, who meets frequently with electrical contractors, says some get suspicious when they see Jaymore's certification as a Minority Business Enterprise.
"We're finding that the first impression of someone in the marketplace is a raised eyebrow,'' he says.
"That eyebrow is raised,'' adds his brother, Jeff Moreland, because customers are thinking, "Why do you want to be legitimate?"
"It's not discrimination. It's warranted perception,'' Eric continues. "That's something we'll have to combat, to make it legitimate and help those coming (after us). The only way to fix this stigma is to perform and that's what we're fixed on doing.''
Kirk Farbacher, a WESCO branch manger in Pittsburgh, agrees. "That will probably be the biggest thing that these guys need to overcome, that they are adding value. That's new in Pittsburgh. There's plenty of MBEs that are just pushing through paper ... There's plenty of work ahead for them to tell customers what a minority business does.''
One state official who helps oversee minority contractors in Pennsylvania believes that perception is overblown, however.
"It happens. But folks are in competition with each other and those are the kinds of things that get said," says Usha Hannigan, a supervisor of training and development with the Bureau of Contract Administration and Business Development. "I'm sure some folks feel it's worse than it is."
More than 300 MBE-certified firms are registered to work in the Pittsburgh area alone. Hannigan, who refers certified firms to prime contractors for state-funded projects, believes most companies these days "aren't using some little company as a pass-through."
Carl Brown, a Pittsburgh attorney who is a consultant to Allegheny County's office for MBE's, says county officials also aggressively check company records for deception. But he says more often than outright fraud, some entrepreneurs run into problems because they don't know what the regulations for MBE suppliers are.
On the flip side, the Morelands have also encountered expectations that with the set asides available, there is little reason a minority-owned distributor or contractor should fail. "To an extent we believed all of that at first, but it's not easy," says Eric. "Discrimination we can handle. That we're familiar with. This is an enigma."
Jeff Moreland says being a minority distributor "may give you a listening ear'' with customers seeking to do more purchasing from non-white owned firms. "It gives you an audience but it doesn't give you a sale. We have to be able to perform to survive."
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