Diversity Lags In Va. Program To Help Firms

By Anita Kumar
Washington Post Staff Writer
Tuesday, August 19, 2008

RICHMOND -- Gov. Timothy M. Kaine's administration has achieved one of its top goals -- buying 40 percent of all state products and services from small, women- and minority-owned businesses.

But a Washington Post review of the state program designed to help such businesses secure government work shows that a vast majority of the 15,800 participating companies are small businesses owned by white men, a fifth are outside the state and an untold number have failed to receive any state contracts.

Critics, including state legislators and business owners, said the program does not work as intended.

"I think the concept, what it is supposed to be, is great. But it's not working," said Larry Hunt, who owns Integrated Digital Systems/Scan America, a small software and scanning company in Manassas that has not received any additional state contracts after enrolling in the program. "I've kind of given up on the state."

State officials agree that the Small, Women- and Minority-owned Business program, called SWaM, needs to be improved, but they said it has made significant strides in recent years despite regular complaints from businesses both in and out of the program.

"I'm amazed we have surpassed the goal. I really am," Kaine said. "But as we look at how we've done, it's clear that where we have knocked it out of the park has been an increase in procurement for small businesses. . . . I'm not yet happy where the numbers are for women-owned and minority-owned businesses. The numbers have improved pretty steadily since I came in, but they are still not at the level that I am happy with."

Since 1975, when Virginia opened its first minority business office, the state has been criticized for failing to help companies secure state contracts.

In the 1980s, state agencies began establishing goals for minority business spending, but after two decades, the number of companies receiving contracts remained about the same.

A first-of-its-kind study in 2003 found that less than a half-percent of state money in Virginia was spent on minority businesses, far behind other states, including Maryland and North Carolina.

Then-Gov. Mark R. Warner (D) called for 40 percent of spending by the state's 160 agencies, departments and universities to come from certified SWaM vendors. His successor, Kaine (D), campaigned on that goal and made it a top priority when he came into office.

Under Kaine, the state has quietly and aggressively worked toward the 40 percent goal, partly by adopting new guidelines that require state agencies to give significant scoring advantage to SWaM vendors for contracts exceeding $100,000.

In the spring, the goal was achieved, though the Kaine administration did not celebrate or even acknowledge the milestone.

"There is no comparison to where we were three years ago," said Samuel Hayes, director of the state Department of Minority Business Enterprise, which runs the program. "It's huge."

In the fiscal year that ended June 30, 5.34 percent of the state's $5 billion discretionary spending went to minority-owned businesses; 3.94 percent went to women-owned businesses; and 28.9 percent went to small businesses, all of them certified in the SWaM program.

By comparison, more than 17 percent of the state's businesses were minority-owned and almost 30 percent were women-owned in 2002, the most recent statistics available from the Small Business Administration.

"I certainly think Warner and Kaine need to be commended for their efforts, but it's going to take a long time to turn this ship around," said Del. Dwight Clinton Jones (D-Richmond), chairman of the Legislative Black Caucus. "The state had a culture of cronyism. To break that culture is very difficult. There's very little movement. We have a long way to go."

Since the 1960s, state and federal governments have experimented with goals and mandates to boost contracts to minority- and women-owned businesses. Some programs have been challenged in court.

At least 27 states, including Virginia and Maryland, have programs that certify businesses to compete for government contracts, according to the National Conference of State Legislatures.

Maryland's program, one of the nation's oldest and most ambitious, calls for 25 percent of state contracts to be awarded to minority- and women-owned companies. In 2007, the state achieved 20 percent. (It has a separate program for small businesses.)

The District's program, revamped in 2005, requires companies to be in the city -- regardless of the size of the company or the gender or race of its owners -- to support local businesses and keep tax dollars in the city, said Sara Gebhardt of the District's Department of Small and Local Business Development. About 1,100 companies are certified. (The District also has programs for small and disadvantaged businesses.)

Unlike other states, Virginia has never set aside any contracts for minority- and women-owned vendors. It does, however, set aside contracts for all SWaM-certified companies.

Hayes, who has run the department with 19 staffers and a $2.3 million budget for seven months, says the minority- and women-owned businesses in SWaM benefit merely by being exposed to more opportunities.

"It's one more thing that makes you better," said Glen Clark, sales manager at a small, woman-owned company, Interstate Office Supply, in Alexandria. Clark, who sought certification about five years ago, said he has seen a slight increase in government business this year, but cannot say how much was because of SWaM.

Purchases of less than $5,000 require at least one bid from a SWaM vendor; purchases from $5,000 to $50,000 require at least four; and purchases more than $50,000 require four of at least six total bids. If none is received or if the prices are not reasonable, then other companies are allowed to bid.

State agencies were sent a memo last year to remind them of the state's 40 percent goal and to remind them to give SWaM companies proper credit when they are rating them against other bids for contracts exceeding $100,000.

Some companies in Virginia, including some with long records of working for the state, have lost contracts recently in the state's eagerness to hire small, women- and minority-owned businesses.

At least two companies are formally protesting losing bids to SWaM companies, which they claim come at taxpayer expense. In both cases, the losing bids were lower in cost than the SWaM bids.

"A lot of people are concerned about the cost factor," said Del. Christopher B. Saxman (R-Staunton), who heads the General Assembly's Cost-Cutting Caucus and has heard similar complaints about lower bids being rejected. "If it's costing the state money, then it's probably worth refining."

In recent years, the General Assembly has considered changing or abolishing the agencies that run the SWaM program.

Del. R. Steven Landes (R-Augusta), who has sponsored such bills in the past, said he wanted to streamline the agencies and save taxpayer money. But Del. Brian J. Moran (Alexandria), chairman of the House Democratic Caucus, described the proposals as "veiled attempts" to eliminate a program crucial to help small, women- and minority-owned businesses that has made "significant progress" in recent years.

About 15,800 businesses are certified in the SWaM program, up from almost 4,000 when Kaine came into office in January 2006. A majority of them are small companies.

Virginia defines small businesses as those that have fewer than 250 employees or $10 million or less in sales a year, a more permissive standard than other states and one that opens the SWaM program to more companies.

About 20 percent of the companies in the program are from out of state.

Hayes said out-of-state companies are included so that Virginia businesses can be considered in other states' certification programs. "If you block them out, they block you out," he said.

Many companies praise the SWaM certification process, which the Kaine administration has made simpler and quicker, but they complain about not receiving contracts.

"Certification does not bring you contracts," Hayes said. "What certification does for you is make you eligible to participate. It puts you in a position to compete."

Tracy Blake, who manages a small, minority-owned landscaping company, Grass Guru, said that after the business became SWaM certified, he made an appointment with the Virginia Department of Transportation to learn how to submit bids.

Now, he said, all of the company's work planting flowers in medians in Northern Virginia is for the state.

"It's all about effort," he said. "You have to jump-start things yourself."

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