It Isn’t a Free Meal Ticket : Derek Smith

	At 31, Derek Smith is well on his way to building his dream. In four years as President and CEO of Marinship Construction Services, Inc. in San Francisco, he has gone from a one-man operation in the basement of his grandmother’s house in the Bayview/Hunters Point district to a respected construction company with an office staff of 11 and 30 to 50 more employees out on job sites. He’s got 14 trucks and assorted backhoes, excavators, loaders, compressors and other pieces of heavy equipment. The company does an annual gross of more than $7 million, and most years he has turned a small profit. Among the bright spots in the young man’s r‚sum‚ are such high-profile jobs as the reconstruction of San Francisco’s famed Lombard Street hill-“The Crookedest Street in the World.” He was also the first contractor hired when work began on the new home field of the San Francisco Giants, Pacific Bell Park. Smith readily acknowledges the many advantages he had that are not available to fellow African Americans trying for a foothold in the tradition-bound construction business. He has an education that most minority business owners can only dream of.
	Yet despite his many advantages, Smith says his rapid rise in what he repeatedly refers to as the “exclusionary” construction industry would not have been possible without affirmative action. It’s simple, he says. “People want to work with people that they’re comfortable with. Prime contractors want to work with subcontractors that they’re comfortable with. And most of the time, minority firms don’t give the comfort level to the good old boys that they’re used to. Joe Blow contractor hires John Doe subcontractor on every single job because they work together and they play golf together on the weekends. And most minorities don’t fit into those types of networks.” It’s a story repeated by one after another minority subcontractor-some of them so circumspect about the long-established large white contractors on whom they’re dependent for business that they will not allow use of their names for publication. “It’s still a white world,” says one respected African American contractor with a number of high-profile contracts in Southern California. “It’s an industry dominated and controlled by white America. They make the rules. That’s fact.” Of the inequities in the business he says, “It’s just natural. Folks take care of their own.” Without affirmative action, he says, “it would not be a prudent business decision [for a minority] to start a business today” like the one Derek Smith started four years ago. There are very few second-generation black-owned firms in the construction industry, Smith says. So the only way to break into the big jobs is the hard way-starting from scratch, as he did.
	Smith grew up around construction sites. In the predominantly African American community of Marin City, his father owned a small trucking firm that hauled construction material. Marin City is surrounded by wealthy white professional communities where Smith went to college-track schools. He was a good student. He then attended the University of California at Berkeley, majoring in mechanical engineering. The University’s Minority Engineering Program provided graduate-student teaching assistants to tutor interested minority students, and the African American students themselves organized joint study groups. Smith took advantage of both. In his spare time-when he wasn’t engaging in intramural sports or involved in fraternity activities-he helped pay his school bills by starting his own trucking business, DHS Trucking, a small firm that still exists, with other family members doing most of the day-to-day work now. “I was the only one of my friends in college that had his own business,” Smith says. He worked summers for Pacific Gas & Electric Co., as an engineering intern, and for companies doing construction work in San Francisco. Out of those experiences came two resolutions: He wanted to work in construction after graduation, and he was all the more determined to start his own company some day. But to do so he would need to study civil engineering, not just mechanical, so he applied to graduate schools. Stanford, says Smith, offered the nation’s top program in construction engineering and management. He was accepted into the one-year program with a full fellowship. While there, he brought himself up to speed in civil engineering by taking extra courses. It was an unusually heavy academic load-up to 20 units a quarter. “All I did was study,” he says. At Stanford he took advantage of networking opportunities that were not available to other minorities. When he graduated, his first job-with a mid-sized construction company-was as the field engineer for the renovation of San Francisco’s Temple Emanuel. He went on to other roles with the company, including as an estimator-an essential skill for someone who hoped one day to be bidding for his own contracts. He was also project manager for a number of restoration and seismic renovation projects at downtown San Francisco office buildings.
	For 3 years Smith planned meticulously for the day when he would start his own firm. He gained on-the-job experience, he acquired the appropriate licenses and certification as a Minority Business Enterprise from the state and the city of San Francisco, and finally he set up his basement office in the shadow of Candlestick Park, home of the San Francisco 49ers and Giants. He also began to put out the word that he was planning to go into business for himself. The day after he approached one city official, he was called about an emergency sewer project in downtown San Francisco. He leapt at the chance, quickly forming a joint venture with another company so he could get access to the needed equipment, labor pool, bonding and materials accounts. He was on his way-supervising that project at night and working days to line up business to keep his fledgling company going. What really made it possible for the young man to make that big leap into his own business was his status as a Minority Business Enterprise. “I was a one-man operation. Who was going to give a black kid a construction opportunity if there wasn’t any incentive for them to do so?” Smith emphasizes that his minority status “isn’t a free meal ticket. All it does is get you to opportunities you wouldn’t normally have in this white, male-dominated industry.” It got him into the bidding process, he says. “But once you get there, you have to work twice as hard as the competition just to stay in the game.”
	Smith has more than one stereotype to overcome. As he wanders his job sites in a hard hat, supervising his crews, the company owner is often shooed off by suspicious security guards and construction supervisors. Part of the problem is his youthful appearance, he says, and part of it is the color of his skin. “They don’t expect to see a business owner who’s either African American or young.” Engineers for some public agencies lean a little harder on the minority contractors. Smith says the covert message is: “’If you want to play in this league, we’re going to make you pay.’ Some agencies are really good to work for, but with others it’s just hard to get people to recognize you as a contractor. They don’t think you belong.” Alan Dones, an African American who owns Rondeau Bay Construction Inc. in Oakland and has been in business far longer than Smith, confirms that after minority subcontractors win contracts, they are often “treated in such a terrible way that they aren’t able to be successful and profitable.” Some, in fact, have been pushed right to bankruptcy. Affirmative action, Dones says, must be monitored and enforced better than it is now. But more than that, there must be the political will to make it work. Also daunting are the financing hurdles that face the minority contractor, like bonding-“the lifeblood of a construction company.” Dones says that minority construction firms often pay 3 or 4 percentage points more than white firms to get bonded-6 or 7 percentage points if you count the loans that contractors must take out to cover the bonding company’s demands for guarantees of liquid-or easily liquifiable-assets. All such costs, of course, must be reflected in the higher bids minorities are often compelled to make, based on their higher costs. Smith says that bank credit is a major impediment to his growth. “For someone like me that doesn’t have a lot of cash but needs capital to sustain growth, banks think I’m this great risk, even with my track record for the last four years. Bonding has been achievable for me because…people believe in me. But it’s tough to get a bank to believe in anything but credit.”
	Nevertheless, Smith has doggedly expanded his company literally from nothing. He has worked on the full gamut of public and private jobs, from fast-food restaurants to freeways and airports-and, of course, “The Crookedest Street in the World.” He gets public jobs by being the low bidder, not by being a minority. Most private construction opportunities never come to his attention. They go to the prime contractor’s friends, or they are advertised in media that are prohibitively expensive for new minority companies. The Daily Pacific Builder, for example, includes notice of many upcoming jobs, but a year’s subscription to that one newspaper costs nearly $2000. As a result, Smith is largely reliant on the solicitation letters and faxes that prime contractors and public agencies are required to send out to minority firms. Smith dreams of getting big enough so “we don’t need help from affirmative action-where we can sit back and help other minority contractors and compete with the best of them. But that’s a few years away, and it’s even further away if affirmative action disappears. I do believe that minority firms should not depend on affirmative action forever.” Meanwhile, the young businessman yearns for more time to fulfill some of his other dreams. He likes to spend time talking with kids in communities like the one he grew up in. “One of the things I do now is I put young black men and women to work in the Bayview/Hunters Point area. Kids that I grew up with work for my company. These are people that would never ever have an opportunity to work in construction”—certainly not on a sustained basis. Smith has a further dream, of the kind of world he wants for his family-his wife, Renee, and sons, Julien, 2, and Joshua, 6 months. The dream is embodied in the name he chose for his company: Marinship Construction Services, Inc. “Marinship was the shipyard in Sausalito that Bechtel started right before the war,” he says. “My grandmother was a welder there, and my grandfather was a sheet-metal worker. And there was a coming-together of all types of people from all over the country-blacks, whites, Asians, women. It was all for one cause, and that was to build ships for the war. And they were very successful. Those Liberty ships won the war.”