The District of Columbia government will pay an estimated $1 million extra for heating oil this winter because of a policy decision to buy most of its oil from minority contractors rather than through the federal General Services Administration, according to city officials.
The oil -- costing roughly $17 million this year -- is being bought from minorities to satisfy a 1977 law requiring city agencies to spend 25 percent of their contracting dollars with minority firms. Before last year, the District purchased all its oil through the GSA.
The city's oil contracts satisfy most of its goals of spending $25 million with minority firms for supplies and services this year; it is not counted toward the seperate goal of spending 25 percent of construction project dollars with minority firms.
By buying oil the way it does, it appears that the District is paying somewhat higher prices for its oil than other jurisdictions in the Washington area, which buy oil from nonminority firms.
City officials say the oil costs more because the minority firms are generally small and it costs them more to gear up to handle the city's contracts.
"It always costs the little guy more to do business," said Eugene L. Bennett, chief of material management in the city's Department of General Services. "He doesn't have any of the breaks the big guy has."
Asked about the additional expense, former City Council Chairman Sterling Tucker said, "If that is true, that's only looking at it from one perspective." He said letting contracts to minority firms creates jobs for blacks and "stimulates the economy" of the District.
Tucker, who was council chairman when the Minority Contracting Act took effect, said it was never explicitly contemplated by the council that it would cost more to contract with minority firms. But, he said, "maybe it was implicit."
Courtland Cox, executive director of the city's Minority Business Opportunity Commission, said the District in fact receives an "economic benefit" from dealing with minority firms.
Cox said that whatever the city pays in additional costs, it gets more than that back in additional taxes and employment.
Most cities in the nation now require that part of their contracting money be spent with minorities and the federal government has moved in the same direction in recent years.
Like the District's, these programs are aimed at training minority firms and giving them the chance to grow so that they can eventually compete with larger nonminority firms.
The city could satisfy the requirements of the Minority Contracting Act by buying commodities other than oil, but Bennett said oil is a "natural" item to buy from the minority firms because several of them handle it.
District officials openly concede that they'll have to spend more to buy oil from minority firms. Last year city officials estimated that the added cost would be $380,000 or 5 percent, this year, they estimated the additional cost would be 6 percent.
Bennett said the city has a "social responsibility" to "further minority business practice" and should be willing to pay up to 10 percent more on any given contract to have a minority firm perform it.
City General Services acting chief Carroll B. Harvey wrote in an Oct. 23 memo to City Administrator Elijah B. Rogers that the added cost for oil is "in consonance with the spirit and intent" of the 1977 Minority Contracting Act with its 25 percent requirement.Rogers approved the action.
Not everyone agrees that it costs more to buy from minority firms -- or that it should.
Charles H. Parker, administrative director of the National Association of Minority Contractors, said that "at least 80 percent of the time" it is no more expensive to award contracts to minority firms than to nonminority firms, but that oil contracts may be an exception.
"As you know, (big) oil companies have a monopoly, and small companies have to pay more for the raw products," Parker said.
"I don't think it's justified, hell no," said Lonnie High, director of operations at D.C. General Hospital, when asked about added costs of minority contracts. Later, High called a reporter back and said he had changed his mind -- the costs are justified, he said this time.
The added costs are a sensitive topic for the two minority firms that sell oil to the city.
"How can a minority compete with an Exxon or an Amoco?" said Joseph J. Green, president of Green Fuel Oil Co. He said that if there is an added cost for doing business with minorities, "Maybe it ends up in Iran."
George H. Starke Jr., president of Tricentennial Energy Corp., the other firm, said, "I don't want people to think that Tricentennial has anything to do with social costs. I try to be a businessman, I try to keep my costs to the bone."
The two firms supplied 88 percent of the District's oil this year -- all that is used within the city limits or about 20 million gallons. The city's $7.5 million contract with Green this year for No. 2 heating oil is the largest single contract awarded so far under the Minority Contracting Act.
The remaining 12 percent of the city's oil is used mainly at Lorton Prison in Virginia and D.C. Children's Center in rural Maryland and is obtained from nonminority contractors through the federal GSA -- the was the District obtained all its oil before last winter.
The District was able to do that because of its special relationship with the federal government. Other jurisdictions cannot.
It is the GSA price that Bennett's office uses in estimating how much extra it costs the city to buy oil from minority firms.
On Nov. 20, for example, GSA's price for light No. 2 heating oil was 83 cents a gallon compared with the 88.5 cents the city was paying to Green, the minority firm.
GSA's price that same day for No. 6 heating oil (a heavier grade) was 63 cents compared with Tricentennial's price of 67.22 cents.
A Nov. 16 check of 16 local heating oil distributors by The Washington Post showed prices for No. 2 heating oil ranging from 79.5 to 91 cents a gallon for an average of 87.9 cents -- about half a cent less than Green was charging the city at that time.
This year, in addition to the large No. 2 contract, Green has a $662,000 diesel fuel contract with the city.
Under Green's No. 2 oil contract, the margin between what he pays for oil and what he sells it to the city for appears to be about 2 1/2 cents a gallon -- a figure that local oil distributors say is reasonable, perhaps even slim, for such a contract.
Green said that that margin is not all profit to him because he must pay his delivery costs and other business costs out of it.
In documents filed with Bennett's office, Green listed his salary from his oil business as $15,000.
Tricentennial is supplying the city's No. 6 oil at least through Dec. 30, when this contract expires. Tricentennial also has a $2.2 million contract to supply No. 2 oil to D.C. General Hospital and a $228,000 lubricant contract with the city.
On Nov. 21, Bennett's office opened the bids of three minority firms, including Tricentennial, to supply 9.2 million gallons of No. 6 oil inside the city limits this year.
The apparent low bidder was Tricontinental Industires Inc. -- an entirely different minority firm from Tricentennial. The bid was 67 cents a gallon, but Bennett's office must study and audit the bids before an award will be made.
Green, a former truck driver for another oil company, started his own business in 1975 by delivering oil to houses and small commercial accounts.
Business took off last year when he obtained a $1.8 million contract to deliver 4.1 million gallons of No. 2 oil to the city.
Green expanded further this year by finding a supplier willing to provide him up to 13 million gallons for the city -- no mean feat in a time of oil shortage, local oil distributors say.
The supplier is Roarda Inc., a Maryland firm that buys from major and smaller refiners and that has millions of dollars in federal contracts nationwide. Roarda used to supply much of the District's No. 2 oil through GSA.
Now, according to Roarda contract administrator Harry Cooper, the firm is training Green. "We show him what we know so he can do a decent job," Cooper said.
He said Roarda is explaining to Green the efficient delivery system it developed for getting oil to city facilities.
Green's drivers deliver about half the oil in Green's contract in several trucks owned or leased by Green, while Roarda and common carrier trucks deliver the rest as subcontractors to Green, Cooper said.
Several city agencies complained last year about late deliveries by Green, and at one point Bennett wrote Green a stern letter demanding better service.
Green denies that he is being "trained" by Roarda and says there is "no validity" to last year's complaints. "They don't have to show me" how to deliver oil, Green said. "There are some situations where we have late deliveries. It's almost impossible to avoid."
Starke, the Tricentennial president, came to Washington in 1968 as an assistant director of government affairs for Greyhound. In the early 1970s he started his own consulting business and now has expanded it to include sales of coal, petroleum products, specialty chemicals and other goods.
Starke, who gets his oil from local distributors like Steuart Petroleum Co., described himself as an oil "reseller. I consider myself more transportation than anything else. Of course you take title to the stuff."
Starke said his profits are "calculated in mills" -- less than a penny a gallon.
Tricontinental Vice President Mekem Onyia, who was present at the Nov. 21 bid opening, is a Nigerian who hopes to build the small, new company from a Washington-Baltimore base into a major "link . . . between American and Africa through oil."