In Chicago, the little known Public Building Commission (PBC) is responsible for awarding an average of $250 million in contracts annually for construction on public projects. The PBC requires contractors to spend at least 24 percent of their project budget on minority firms and four percent on female-owned businesses. These mandates were created to ensure diversity in the industry, but Crain’s has discovered that contractors are bending the rules by using “2 percent” companies to flow funds and win contracts. These companies having no purpose other than acting as brokers, according to union officials.

An investigation by Crain’s of 63 agency contracts since 2008 shows that of the $1 billion awarded by the PBC, tens of millions were funneled illegitimately:

“This has been going on for years,” says John Luckett, the African-American owner of Glass Designers in South Deering, in business since 1984. Referring to the widespread use of pass-through subcontractors, he adds, “The system is set up for corruption at the top, and at the bottom it’s set up for legitimate minority businesses to ultimately fail.”

Chicago Mayor Rahm Emmanuel made campaign promises to give more power to the Inspector General to investigate abuses, but in his first year in office did little to right the ship. These “2 percent” brokers, so called for the two percent they make on each transaction, are merely part of a corrupt system that threatens legitimate minority and female-owned business:

Though big construction companies may game the system, the PBC does nothing to stop them, say subcontractors including Harold Harvey, owner of A&H Mechanical, a heating, ventilation and air-conditioning firm in Grand Crossing. “If you’re a legitimate minority contractor, these guys do not want to do business with you,” says Mr. Harvey, an African-American who has 30 years in the trade. “The PBC gives the jobs to the big companies, then they allow them to run their stuff through these pass-throughs.”

Few other minority or women business owners are willing to speak out on the record against what they privately call abuse. “If I talk about this publicly, I’ll never get another contract,” one small-business owner tells Crain’s. Says another: “It’s happening, and it has happened to me. But I’ve got a family to feed.”

Chicago’s Inspector General has evidence that these companies are not properly certified. The PBC relies on the city and other agencies to certify the companies being awarded contracts. The facts show that there is little oversight. Last June, Chicago Inspector General Joseph Ferguson revealed,

that the commission had “grossly overstated” the amount paid under its minority- and women-owned business program on 15 projects completed in 2009. PBC officials rejected Mr. Ferguson’s claims, saying he had miscalculated the level of participation.

Without proper auditing, the agency can’t be certain it is addressing past discrimination, Mr. Ferguson says. “The commission’s (numbers) satisfy the political objective,” he tells Crain’s, “but there seems to be a lack of intent in actually achieving the goals of the program.”

Many of the companies, such as Fullerton Industrial Supply, provide no commercially applicable function. Crain’s found that the offices showed no evidence of the product they get paid to supply:

Fullerton Industrial Supply isn’t much to look at. From the street, the Lincoln Park storefront appears to be vacant, with a couple of gang symbols smudged on the windows. The front door, with the occupant’s name pasted in tiny letters, is locked even in the middle of the day.

Yet records show that this nondescript business plays a central role in a shell game perpetrated by Chicago’s biggest general contractors and the public entity that awards them hundreds of millions of dollars for taxpayer-financed construction.

Read this entire, revelatory store HERE.