A distressed Cleveland community added 5,200 new construction-related jobs as a result of University Hospitals’ expansion plan, which focused on spending locally and hiring minority- and women-owned contractors.
In 2005, University Hospitals, Cleveland, launched a $1.2 billion strategic systemwide expansion. But the health system’s leaders set their sights higher than just new construction; they wanted the dollars to benefit the local community as well.
“Our five-year strategic growth plan, Vision 2010, presented an opportunity to look at our healthcare system’s position as an anchor institution in the community and decide what we could do to not only improve the health of our community but also to improve the economic conditions in the surrounding neighborhoods,” says Heidi Gartland, vice president of government relations, University Hospitals. “Our building project offered a way for University Hospitals to expand our passion for healing patients into helping the surrounding community become economically vibrant,” says Gartland.
Expanding with an Eye on Social Responsibility
University Hospital’s strategy was to make an economic and social impact through locally focused initiatives. The health system’s goal was to spend 80 percent of the total dollars budgeted for the project on goods, services, and materials purchased from local suppliers and businesses. In addition, University Hospital set a target to spend 15 percent of the budget on minority contractors and 5 percent on women-owned contractors.
“This was a four-way partnership between us, the county, the contractors, and the labor unions. We developed a legal document that stated our buy-local and diversity goals. This was a first for many of the groups on the project, so gaining buy-in from them required negotiation by our chief administrative officer and vice president of construction services,” says Gartland, who coordinated communications among the various government entities involved in the project.
The results: University Hospitals surpassed its 80 percent buy-local goal and purchased approximately 92 percent of the goods, services, and materials used on the project from local suppliers. In addition, 17 percent of the contractors on the University Hospitals’ jobsites were local minority-owned businesses and 7 percent were women-owned business. The construction projects also created 5,200 construction-related jobs in northeast Ohio.
To ensure it was meeting its goals, University Hospitals hired a third-party company to regularly visit the job sites to monitor and verify the spending on the project compared to the goals. “We were absolutely locked tight on who was working on our projects,” says Gartland.
University Hospitals cites several reasons for this close monitoring of the project. First, University Hospitals wanted independent, verifiable data to back up its analysis of how well it met the goals. University Hospitals wanted to know whether it had truly delivered on its buy-local goals, and it also wanted unbiased data to demonstrate to stakeholders—including the larger community—that the hospital system was walking its talk.
Second, University Hospitals needed a member of the project team who could focus solely on ensuring that the local minority- and women-owned businesses were meeting their goals for the project, allowing the construction management team to concentrate on meeting the project timeline. Finally, the third-party company ensured that minority firms were being educated on the opportunity to bid on contracts and were considered at every level of the process to award contracts.
Reaching Out to Minority- and Women-Owned Contractors
To achieve its goal of hiring as many minority- and women-owned contractors as possible, University Hospitals recognized that it would have to even the playing field so large and small contractors would have an equal chance to win bids. Many of the minority- and women-owned businesses in the area are typically smaller and less experienced businesses than the contractors University Hospitals had used in the past, so the health system’s leadership used the following strategies to remove potential obstacles in the bidding process for smaller contractors.
Modified the bid scale. Bids were broken down into smaller chunks, so contractors that had a limited scope of services could participate. For example, a small minority-owned electrical contractor that didn’t meet certain criteria because of its size and experience level could partner with a larger minority-owned electrical contractor to provide one portion of the electrical work.
Changed requirements. University Hospitals modified bonding requirements so that small companies that usually don’t have the finances, performance history, or management capabilities to meet those criteria could bid on the project. “Some of these contractors had the expertise to do a quality job, but they didn’t have the track record or other qualifications to meet our typical contractor requirements. So we found creative ways to help these smaller firms bid on our projects,” says Gartland.
For example, University Hospitals worked with prime and subcontractors, banks, and attorneys to develop a joint venture structure that assigned the largest bonding responsibility to the prime contractor, who was required to cover the subcontractor.
Added outreach. The health system held additional briefing meetings with smaller firms to ensure that they received the information they needed to bid on the project.
Now that the major construction project is complete, University Hospitals still requires that vendor contracts that are more than $25,000 be sourced from a local business, a minority-owned business, and/or a woman-owned business.
“We are changing the tendency to use the same contractors so that the opportunity to get work at University Hospitals starts to become a community asset rather than an expectation for a small group of vendors. And we have been able to do that without increasing costs,” says Gartland.
Investing in Local Real Estate
In addition to building on its own footprint, University Hospitals partnered with its main distribution supplier and the city of Cleveland to build a new $6 million distribution center on an abandoned property in the local neighborhood. The distribution center, which opened in June 2014, allows University Hospitals to have a supply source close to its facilities, a need that became particularly clear after a disruption in the health system’s supply chain after Hurricane Katrina and the major power outage on the East Coast.
Setting the Standard
University Hospital’s community-based approach to its expansion is gaining attention throughout the Cleveland business community as part of a citywide program to develop community benefit agreements that hold development projects accountable for creating a direct, local benefit.
“University Hospitals set the standard for private employers to take a socially responsible approach to construction projects and employment. As a private employer, we weren’t required to use certain contractors or hire certain people, but we did it anyway. That has turned a lot of eyes toward what we’ve accomplished, and we hope to set an example that encourages other employers to invest in local Cleveland communities,” says Gartland.
Related sidebar: Tapping the Underemployed Leads to a Loyal Workforce
Betty Hintch is an editor at HFMA.
Interviewed for this article:
Heidi Gartland, vice president of government relations, University Hospitals, Cleveland.
Publication Date: Wednesday, July 30, 2014