- The Washington Times - Sunday, August 14, 2005

Businesses in the D.C. government’s “Local, Small, Disadvantaged Business Enterprise” (LSDBE) contract preference program took in nearly half a billion dollars last year, compared to $68 million in 1998.

“I think we’ve gone from a program that was broken to putting a system in place that works,” said Jacquelyn Flowers, a former banking executive who took over the city’s Office of Local Business Development in 1999, replacing Gerald Draper. He resigned that year before going to prison over a kickback scandal.

But some small- and medium-sized contractors say despite improvements, they still see flaws in the LSDBE program, whose vendors received $481.3 million last year. For one thing, they say much of that money goes to big LSDBE-certified companies that qualify only because they’re based in the District.

“The whole point is to help the local, small, disadvantaged businesses,” said electrical contractor James H. Bradby, owner of JH Bradby Inc. “Once you reach a certain volume of business, you should be out of there.”

“I keep hearing this $480 million figure, but how can that be?” said D.C. Council member Kwame Brown, at-large Democrat, who plans to hold hearings on the LSDBE program starting next month. “When you talk to businesses out there, people don’t feel that that’s actually taking place.”

According to one Office of Local Business Development report, five of the nearly 400 LSDBE companies that received funds from the city last year accounted for about one-third of the total $481.3 million paid out.

The top 15 LSDBE companies received more than half of the money — and two companies run by the same contractor took in about one in every five of the LSDBE dollars, according to city records.

The D.C.-based accounting firm Thompson, Cobb, Bazilio & Associates, and the health maintenance organization DC Chartered Health Plan, both operated by businessman Jeffrey E. Thompson, collected nearly $100 million of the $481.3 million, according to the D.C. Office of the Chief Financial Officer.

But Miss Flowers is quick to point out that most of that $481.3 million was not awarded through small-business set-aside contracts alone. She said most money paid to larger LSDBE-registered companies such as Chartered Health was awarded via larger contracts won in open-market competitive bidding.

Qualifiers

Under the LSDBE program, contracts can be won in one of two ways.

First, vendors that qualify as “small business enterprises” can compete for “set aside” contracts in bidding that is limited to other LSDBE vendors.

In addition, other larger companies ineligible to compete for small-business set-aside contracts still can get LSDBE “preference points” to gain an advantage in open-market competitive contracts.

“There are companies all along the spectrum,” said Miss Flowers. “When businesses compete against businesses, it’s always a fair, open and competitive process, even when we do our small-business set-asides.”

The LSDBE program began in early 1992, after D.C.-based O’Donnell Construction Co. successfully sued the District over its minority set-aside program. A court decision deemed the solely race-based program unconstitutional.

The current program gives qualifying companies contract preferences based on a host of factors, including whether they are located in the city, the sum of their annual gross receipts, or whether a 51 percent stake in the company is held by “socially disadvantaged” persons.

The District defines a “disadvantaged business enterprise” as being controlled by persons who have “faced chronic, not fleeting, instances of prejudice or bias due to their identity as members of a group.”

Certification as a “small business” depends on revenues. In construction, for example, a company’s annual gross receipts cannot exceed $23 million, while specialty trade contractors cannot exceed $13 million.

A “local business,” meanwhile, has its “principal office physically located in the District” and is subject to D.C. taxes, according to city regulations.

Companies seeking to register in the program can qualify as small, local or disadvantaged, or all three.

However, even certification as all three — a “small, local and disadvantaged business enterprise” — does not guarantee getting any city business.

Rebecca Scates, owner of Becky’s Professional Cleaning Services in Ward 5, said she was certified as a local, small and disadvantaged business about a year ago.

Though her business signed a contract to perform up to $45,000 worth of services cleaning group homes for the D.C. Child and Family Services Agency, she said she has been called for one small cleaning job worth $300.

“I thought there was great potential in it,” she said. “But I’ve kind of written it off. I didn’t know it would be this stressful.”

Big businesses

Last year, the District certified that $481.3 million was paid through D.C. and federal funds to LSDBE-registered companies via set-aside contracts and open-market bidding.

By contrast, Baltimore’s contract preference program, which targets minority and female contractors, paid out $83.1 million last year.

Among the city’s top five LSDBE companies, D.C. Chartered Health Plan was awarded the most money — $87.8 million. Another health maintenance organization (HMO), Health Right Inc., was awarded $26.3 million.

Road paver Fort Myer Construction Group received $20.2 million. And two construction companies — the Temple Group Inc., which was awarded $19.6 million; and Jair Lynch Companies, which received $16 million — round out the top five.

Both the Temple Group and Jair Lynch Companies are certified as small-business enterprises by the city.

For HMOs such as Chartered, however, much of the money they receive is passed on to District-based health providers, such as hospitals, doctors’ offices and clinics.

Companies such as Chartered are too large to compete for contracts through the city’s small-business set-aside program, but they can pick up key LSDBE preference points when competing for open-market contracts.

“We like to show that, when we look to engage the services of a contractor, even when we’re not doing business in the small-business set-aside program, we look to put money back in the District’s economy,” Miss Flowers said.

Goal oriented

City agencies are required to set aside half of their “expendable budgets” on LSDBE businesses.

Such business expenses do not include required expenses such as postage, water or electricity, but expenditures for which agencies generally have a choice about where to spend tax dollars. That includes goods and services such as office supplies, computers, uniforms, security and janitorial services.

In 1998, Miss Flowers said, only one agency met its LSDBE spending goals. Last year, all but two of 55 agencies met the requirements, records show.

One agency that missed its LSDBE goal last year was the D.C. Sports and Entertainment Commission. It awarded 12 percent of its $2.1 million expendable budget on LSDBE businesses, ranking the commission as the city’s worst agency for set-aside compliance. The D.C. Department of Mental Health also failed to meet its goal.

The numbers at the sports commission have sparked particular concern because that organization is overseeing construction of the baseball stadium in Southeast, and city officials are under pressure to ensure that locals share in planning, building and concession contracts.

In March, the commission announced the hiring of Courtland Cox, former director of the U.S. Department of Commerce’s Minority Business Development Agency, to oversee its LSDBE hiring.

“We’re sort of correcting things mid-stream,” Mr. Cox said. “I think that in addition to meeting the numbers, we have to build an infrastructure.”

Mr. Cox said he is monitoring the commission’s progress toward meeting its LSDBE goals each fiscal quarter. The commission is on track in its game-day budgets for parking, security and cleaning contracts at RFK Stadium, where the Washington Nationals play, he said.

But early indications are that LSDBE businesses may not be getting enough food and beverage contract work, he said. Mr. Cox said he has been meeting with the prime food and beverage contractor, Aramark Corp., to discuss the problem.

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