September 26, 2012

THE RATIONALE for the District of Columbia’s giving preference to businesses certified as small and local is that it benefits the government to award its contracts to firms that contribute directly to job creation and the tax base, even if that means higher costs. But the merit of the policy is undercut by the shoddy way D.C. businesses have sidestepped the requirements of the Certified Business Enterprise program while taking full advantage of its benefits.

The latest example of the problems with the program comes in a report by the Washington City Paper, examining the companies involved in the recent $62 million renovation of Anacostia High School. The joint venture that won the contract benefited from extra points in the bidding process because it included a small, local firm. But despite a requirement that 51 percent of the joint venture be controlled by the D.C. firm, most of the work and the money allegedly went to a Rockville firm that used the smaller company as a front, according to the report by Alan Suderman. Another contractor recounted how he was offered a $100,000 flat fee from a larger firm — not to do any work, but only so that his firm’s preferential points could be used in a bid.

Problems with the program have factored into other city contracts. Part of the controversy over the award of the lottery contract centered on the qualifications of the minority companies that partnered with the international firms vying for the business. A report by the D.C. inspector general questioned the process by which one seemingly legitimate company was denied certification, while another firm with questionable qualifications was approved and ended up with a big piece of the lottery.

Another issue — which arose when the city’s grass-cutting contract was yanked from the lowest bidder — involves contractors who are D.C.-based in name only; most of their operations are outside the District, but a small office is set up in the city to win the coveted certification. Whether more city residents end up with jobs, as is the aim of the policy, is anyone’s guess. In these cases, as in others, the program ends up inhibiting the growth of legitimate small businesses, which are undercut by the false fronts set up by larger firms.

Asked how many employees he has monitoring firms’ compliance with the city’s rules, Harold Pettigrew, director of the D.C. Department of Small and Local Business Development, told the City Paper: “Short answer is zero, longer answer is zero as well.”

The problems with the program predate the current administration; a spokesman for Mayor Vincent C. Gray (D) said the mayor in July ordered a thorough review with recommendations for change. When the plan is rolled out in early October, one of the questions the mayor and the D.C. Council will need to address is whether there is anything about this discredited program that is worth salvaging.